Question

"Under U.S. GAAP, Park should consolidate the financial records of Sunder in which one of the following circumstances?

a) Park owns 40% of Sunder's voting stock, and no other parties have significant influence.
b) Park owns 51% of Sunder's voting stock, and there is no indication of significant influence.
c) Park owns 20% of Sunder's voting stock, and there is evidence of significant influence.
d) Park owns 75% of Sunder's nonvoting stock, and no other parties have significant influence."

Answer 1

Park should consolidate Sunder's financial records if b) Park owns 51% of Sunder's voting stock. This ownership confers a controlling interest and requires the financials to be consolidated under GAAP.

Step-by-step explanation:

Under U.S. GAAP, Park should consolidate the financial records of Sunder in the circumstance where Park owns 51% of Sunder's voting stock, and there is no indication of significant influence. This ownership percentage typically confers a controlling interest, allowing Park to exert control over Sunder's business and operational decisions, hence requiring consolidation into Park's financial statements.

A controlling interest generally is presumed to exist if a parent company owns more than 50% of a subsidiary's voting stock, enabling the parent to direct policies without having to consult other shareholders. Hence, the correct answer to the question is option b) Park owns 51% of Sunder's voting stock, and there is no indication of significant influence.