Final answer:
Under U.S. GAAP, a company generally consolidates its majority-owned subsidiary. Exceptions include when a subsidiary is in bankruptcy, where control may be influenced by bankruptcy proceedings. A difference in industry or a subsidiary being foreign does not preclude consolidation, while a joint venture is treated differently, often using equity method accounting if there is significant influence. Correct option is 1)
Step-by-step explanation:
Under U.S. GAAP, a company is generally required to consolidate its majority-owned subsidiary unless certain conditions apply. One such condition is when the subsidiary is in bankruptcy. During bankruptcy, the parent company might not have a controlling interest, or the bankruptcy court might have significant control over the subsidiary's operations. Therefore, in this context, the subsidiary would not be consolidated on the parent company's financial statements.
Having a subsidiary operate in a different industry (option 2) does not preclude consolidation under U.S. GAAP. The industry difference does not affect the control that the parent company has over the subsidiary. Similarly, the fact that a subsidiary is a foreign entity (option 3) does not impact the consolidation requirement. U.S. companies often consolidate their foreign subsidiaries, despite potential differences in currency and business environments.
Lastly, a joint venture (option 4) operates under a separate set of rules. Consolidation of a joint venture is not typically required unless the parent company has control or significant influence over the operating and financial policies of the joint venture. In practice, equity method accounting is often applied when one company has significant influence but not full control, meaning the investment is recorded at cost and adjusted for the share of profit or loss over time.