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Sandberg Company Case Summary

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Sandberg Company is the parent company to Lee Corporation and Ruiz Company. In other words, Lee and Ruiz are subsidiaries of Sandberg Company. Assuming Sandberg Company is a listed company (“firm whose shares are listed on the public stock exchange for trading” [IAS 27.10]), it should present consolidated financial statements at the end of the accounting period. Consolidated financial statements are combined financial statements of the parent company and its subsidiaries. During the year, Lee Corporation sold an asset to Ruiz Company. Lee recognized a gain of $19,000 on the transaction meaning the cash received for the asset must have been greater than the book value. The book value of an asset is the asset’s original cost less any accumulated …show more content…

“A gain or loss recognized on the sale of a long-lived asset (disposal group) that is not a component of an entity shall be included in income from continuing operations before income taxes in the income statement of a business entity. If a subtotal such as income from operations is presented, it shall include the amounts of those gains or losses,” (FASB ASC 360-10-45-5). Therefore, since the subsidiary is wholly- owned by Sandberg, Lee’s recognized net income of $33,000 (including the $19,000 gain) for the year is correct. If the corporation was not wholly- owned, the amount of net income recognized would have been different. “If a subsidiary company is only partially owned by the parent company, only the portion owned is used in the consolidated net income amount. For example, if a subsidiary company has $50,000 in net income and is 25 percent owned, $12,500 of net income is included in the consolidated net income amount,” …show more content…

In order to achieve a consolidated net income, the total amount of net income for each subsidiary is added to the net income of the parent company. In this particular case since the subsidiaries are wholly- owned, consolidated net income will be the difference between consolidated revenues minus consolidated expenses. “The purpose of consolidated financial statements is to present, primarily for the benefit of the owners and creditors of the parent, the results of operations and the financial position of a parent and all its subsidiaries as if the consolidated group were a single economic entity. There is a presumption that consolidated financial statements are more meaningful than separate financial statements and that they are usually necessary for a fair presentation when one of the entities in the consolidated group directly or indirectly has a controlling financial interest in the other entities,” (FASB ASC

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