Question

Simms Corp. controlled four domestic subsidiaries and one foreign subsidiary. Prior to the current year, Simms Corp. had excluded the foreign subsidiary from consolidation. During the current year, the foreign subsidiary was included in the financial statements. How should this change in accounting entity be reflected in the financial statements?

Short answer

The subsidiary company is owned by some other company, and the change is reflected in various ways, as explained in step 2.

Step-by-step solution

Definition of Subsidiary

A subsidiary company is defined as a company that is more than 50% owned by some other company.

Change reflected on financial statement

This particular change shows the change in reporting entity. This change should be reported reinstating the company's financial statements for all the periods. It should also show the reason and nature of it. The effect of the change on income, net income and EPS should be disclosed in all periods.

This particular change shows the change in reporting entity.