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The consolidation of investments primarily involves the balance sheet, specifically the following key accounts:
- Investment in Subsidiary: This asset account on the parent company's balance sheet represents the initial cost of the investment in the subsidiary.
- Equity Accounts: This includes common stock, retained earnings, and other equity accounts of the subsidiary. These are eliminated on the consolidated balance sheet and replaced with the parent company's equity accounts.
- Non-controlling Interest: This represents the portion of the subsidiary's equity that is not owned by the parent company. It is presented as a separate component of equity on the consolidated balance sheet.
- Goodwill: This intangible asset arises when the purchase price of the subsidiary exceeds the fair value of its identifiable net assets. It is recognized on the consolidated balance sheet.
The income statement is also impacted, primarily through the elimination of intercompany transactions and the recognition of the parent company's share of the subsidiary's net income.
The key financial statement items involved in the consolidation of investments are:
- Revenue and Expenses: The consolidated income statement includes the combined revenues and expenses of the parent company and its subsidiaries, after eliminating any intercompany transactions.
- Net Income: The consolidated net income represents the combined net income of the parent company and its subsidiaries, adjusted for any non-controlling interest.
- Assets, Liabilities, and Equity: The consolidated balance sheet presents the combined assets, liabilities, and equity of the parent company and its subsidiaries, after eliminating any intercompany balances and recognizing goodwill.
Overall, the consolidation of investments is a complex process that requires careful consideration of the various accounts and financial statement items involved.
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