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Confirming Pages
chapter
Consolidation
of Financial
Information
F
inancial statements published and distributed to owners, creditors, and other interested parties appear to report the operations and financial position of a single company. In reality, these
statements frequently represent a number of separate organizations
tied together through common control (a business combination). When
financial statements represent more than one corporation, we refer to
2
Learning Objectives
After studying this chapter, you
should be able to:
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them as consolidated financial statements.
Consolidated financial statements are typical in today’s business
world. Most major organizations, and many smaller ones, hold control
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over an array of organizations. For example, from 2000 through 2011,
Cisco Systems, Inc., reported more than 70 business acquisitions that
now are consolidated in its financial reports. PepsiCo, Inc., as another
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example, annually consolidates data from a multitude of companies into
a single set of financial statements. By gaining control over these companies (often known as subsidiaries)—which include among others Pepsi
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Beverages Company, Tropicana Products, and Quaker Oats—PepsiCo (the
parent) forms a single business combination and single reporting entity.
The consolidation of financial information as exemplified by Cisco
Systems and PepsiCo is one of the most complex procedures in all of
accounting. Comprehending this process completely requires understanding the theoretical logic that underlies the creation of a business
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combination. Furthermore, a variety of procedural steps must be mastered to ensure that proper accounting is achieved for this single reporting entity. The following coverage introduces both of these aspects of
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the consolidation process.
The FASB Accounting Standards Codification (ASC) contains the current accounting standards for business...