Bed Linens Corporation and Its Subsidiaries – Consolidated Statements

 Bed Linens Corporation and Its Subsidiaries – Consolidated Statements

 

The Latin word corpus means body. A corporation is essentially an artificial body. Sometimes a single business entity may be conducted through the “bodies” of two or more corporations. In this case there is a parent corporation which controls the subsidiary corporations by owning all, or almost all, of their stock.

For example, Comfortable Bedding  bed linens online Company is owned by Bed Linens Corporation, which also owns 90% of Canopy Tops Corporation, the parent company is Bed Linens Corporation and the subsidiaries are Comfortable Bedding Company and Canopy Tops Corporation.

Collectively, a parent corporation and its subsidiary corporations are termed a corporate family.

Bed Linens Corporation owns 90% of the common stock of Canopy Tops Corporation. The holders of the remaining common stock of Canopy Tops Corporation are termed minority owners.

The parent corporation also has its own stockholders. Because the subsidiaries are controlled by the parent, investors usually buy stock in the parent, thereby acquiring an interest in the assets and earnings of both the parent and the subsidiaries.

When a business is conducted through the person of a parent corporation and its subsidiaries, financial statements are prepared for both the parent corporation and for each subsidiary. Hence a family of corporations consisting of a parent and five subsidiaries would require at least six sets of financial statements.

The principal asset of a parent corporation is often the stock of the subsidiaries it owns. For example, if the only assets of Bed Linens Corporation are 50,000 shares of Comfortable Bedding Company purchased for $10,000 and 20,000 shares of Canopy Tops Corporation purchased for $80,000, the asset column on the Bed Linens Corporation’s balance sheet would read:

Assets

Investments:

(1) Common stock of Comfortable Bedding Company.. $10,000

(2) Common stock of Canopy Tops Corporation.. $80,000

A balance sheet prepared for a parent corporation does not disclose the nature of the working assets held by the subsidiary corporations, and hence is not very informative in this regard.

Therefore, it is customary to prepare a consolidated balance sheet, showing the aggregate of the various categories of current and noncurrent assets owned by all the corporations in the family. In such a statement the assets of all the corporations in the family are consolidated in one balance sheet.

 

 

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