Question

Which of the following is true?

A) For internal reporting purposes, the parent company does not have an option other than the complete equity method.

B) For internal reporting purposes, the parent uses the same equity method that is used for external reporting purposes.

C) For internal reporting purposes, when the parent uses the cost method or the complete equity method, the resulting consolidated financial statements are identical.

D) For internal reporting purposes, the parent must use the complete equity method because it provides the most accurate accounting of its investment.

Answer 1

Solution:

For internal reporting purposes, the parent will use one of the following methods for accounting of investment in subsidiary: equity, cost, or partial equity. The equity method is most commonly used. The consolidated financial statements will be the same regardless of which method is used by the parent.

Therefore true statement is " For internal reporting purposes, when the parent uses the cost method or the complete equity method, the resulting consolidated financial statements are identical."

Hence option C is correct.