- CFA Exams
- CFA Exam: Level II 2021
- Study Session 5. Financial Reporting and Analysis (1)
- Reading 13. Intercorporate Investments
- Subject 5. Business combinations
CFA Practice Question
Lewis Corporation has owned 75% of the common stock of Clark Corporation throughout the year. What is the proper balance sheet presentation for Lewis' investment at year-end?
B. The investment account will be presented in the noncurrent asset section of the balance sheet according to the equity method.
C. The investment account will be eliminated, and consolidated financial statements will be presented.
A. The investment account will be presented in the noncurrent asset section of the balance sheet as available-for-sale securities.
B. The investment account will be presented in the noncurrent asset section of the balance sheet according to the equity method.
C. The investment account will be eliminated, and consolidated financial statements will be presented.
Correct Answer: C
Majority ownership situations requiring consolidation occur when a shareholder owns more than 50% of the stock of the corporation.
User Contributed Comments 2
| User | Comment |
|---|---|
| vi2009 | acquisition method ... consolidation of accounts. Equity method for minority active investment = 1 liner for B/S and I/S |
| davidt876 | proportional consolidation for significant influence (20-50%) = % of BV of assets, liabilities and equity added to investor's balance sheet. but remember both the investee's retained earnings and commons stock get rolled together, and a % of that figure is added to the common stock of the investor (no change to investor's retained earnings) |