Chapters 3, 4 & 5

Question 1

combined financial statements

Answer 1

financial statements that include a group of related companies without including the parent company or other owner

Question 2

consolidated net income

Answer 2

equal to the parent’s income from its own operations, excluding any investment income from consolidated subsidiaries, plus the net income from each of the consolidated subsidiaries.

Question 3

direct control

Answer 3

occurs when one company owns a majority of another company’s common stock.

Question 4

effective control

Answer 4

ability to direct the policies of another entity even though majority ownership is lacking

Question 5

indirect control (or “pyramiding”)

Answer 5

occurs when a company’s common stock is owned by one or more other companies that are all under common control.