Question

If the parent uses the complete equity method when accounting for its wholly-owned subsidiary on its own books, what is the impact on the parent's financial statements?

1) The parent's financial statements will include the subsidiary's assets, liabilities, revenues, and expenses.
2) The parent's financial statements will only include the subsidiary's net income.
3) The parent's financial statements will not be affected by the subsidiary's activities.
4) The parent's financial statements will only include the subsidiary's dividends.

Answer 1

Using the complete equity method to account for a wholly-owned subsidiary results in the inclusion of the subsidiary's assets, liabilities, revenues, and expenses in the parent company’s financial statements. Correct option is 1)

Step-by-step explanation:

If a parent uses the complete equity method for accounting for its wholly-owned subsidiary on its own books, the impact on the financial statements is significant. Under this method, the parent company would typically recognize the subsidiary's assets, liabilities, revenues, and expenses in its own financial statements. This is because the parent has control over the subsidiary and is viewed as a single economic entity for reporting purposes. Therefore, option 1 is correct: The parent's financial statements will include the subsidiary's assets, liabilities, revenues, and expenses.