Marketing and Support

Question 1

At a recent staff meeting, the VP of marketing appeared confused. The controller has assured him the parent company and each of the subsidiary companies had properly accounted for all transactions during the year. The VP asked, “If it has been done properly, then why must you spend so much time and make so many changes to the amounts reported by the individual companies when you prepare the consolidated financial statements each month? You should be able to just add the reported balances together.” On behalf of the controller, provide an answer to the VP of marketing and support for your response.

Question 2

You are an intern in a CPA firm. Your manager walks into your cubicle and says, “One of our clients is thinking about investing in a company. He wants to know how he should account for this investment. Be prepared to discuss it with the client tomorrow.”

Write a memo to your manager giving your thoughts on how this should be handled by the client. The situation is the following: ◦Company F purchased 40% of the outstanding stock of company K on June 30, 20XX.

◦Both of the companies have a December 31st, year end.

◦Company K is a publicly traded company and reports its net income to company F.

◦Company K also pays a hefty dividend to the shareholders of company F.

◦How should company F report the above facts on its December 31, 20XX balance sheet and income statement? ◦Support your answer.