we have learned that consolidated financial statements need to be prepared when one organization has a controlling
Question:
we have learned that consolidated financial statements need to be prepared when one organization has a controlling financial interest in another organization. Control generally means with a majority interest or voting rights in another entity. However, in some circumstances, control is not consistent with majority ownership, for example, when noncontrolling owners are contractually provided with approval or veto rights that can restrict the behavior of the majority owner. And hence, the majority owner can only employ the equity method. Instruction: Based on what we have learned in Chapter 1 and in prior accounting classes, plus searching the FASB ASC Topic 810 on consolidation,
1). Explain what are protective nontrolling rights, and what are substantive participating noncontrolling rights.
2) what noncontrolling rights overcome the presumption that all majority-owned investees should be consolidated?
3). P Company purchases 70% of the voting rights of S company with the remaining 30% noncontrolling interest held by S' former owners, who negotiated the following noncontrolling rights: a). Any new debt above $1 million must be approved by the 30% noncontroling shareholders. b). any dividends or other cash distributions to owners in excess of customary historical amounts must be approved by the 30% noncontrolling shareholders. According to the FASB ASC, what are the issues in determining whether P should consolidate A or report the investment under the equity method?
Expert Answer:
Answer 1 Protective Controlling rights relate to fundamental changes to the activities of the invest... View the full answer
