A Comparison of Consolidated Financial Statements under the
Economic Unit
Concept and the Parent Company Concept
Project Scenario
On January 1, 2004, Pinter purchased a controlling interest
in Strong, Inc., for $800,000. At that date Strong’s book value was $600,000.
Strong’s assets and liabilities approximated their market values except for the
following items:
Market Value Book Value
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . $ 88,000 $100,000
Building (six-year remaining life) . . . . . . . . . . .
170,000 140,000
Equipment (three-year remaining life) . . . . . . 370,000
325,000
Pinter accounts for its investment in Strong using the
equity method. Strong declared a $25,000 dividend late in 2004. The dividend
had not been paid as of December 31, 2004.
** Note that Pinter reflects an 80 percent ownership of
Strong.
Instructions:
6. Prepare a written summary that compares and explains the
differences between the economic unit concept and parent company concept
consolidated figures at 80 percent ownership.
Describe the effects on the consolidated balances when 100
percent ownership exists. Indicate which concept you believe should be used in
financial reporting and why.
