Which of the Following Statements About the Direct Approach to Consolidation

question 43

Multiple Choice

Which of the following statements about the direct approach to consolidation is true?

• A)It can be used for both simple and complex consolidations.
• B)It is a more methodical and less intuitive approach than the worksheet approach.
• C)The starting point for preparing the consolidated financial statements is the financial statements for each of the parent and subsidiary companies.
• D)The starting point for preparing the consolidated financial statements is the trial balance for each of the parent and subsidiary companies.

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Definitions:

Variable Costing

An accounting method that includes only variable production costs (direct materials, direct labor, and variable manufacturing overhead) in product costs, excluding fixed overhead from inventory valuation.

Fixed Overhead

Recurring operating expenses that remain relatively constant regardless of the level of production or business activity.

Net Income

The total profit of a company after all expenses, taxes, and costs have been subtracted from total revenue.

Inventory

Products and items that a company keeps with the final intention of selling or further processing.