why are subsidiaries that are less than 100 percent owned included in the consolidat 613738

Statement of Consolidation Policy

Cabot Corporation, a producer of specialty chemicals and materials, reported the following accounting policies for inter corporate investments:

Principles of Consolidation: The Consolidated Financial Statements include the accounts of Cabot Corporation and majority-owned and controlled domestic and foreign subsidiaries. Investments in majority-owned affiliates where control is temporary and investments in 20 to 50 percent-owned affiliates are accounted for on the equity method. All significant intercompany transactions have been eliminated.

Required

a. Cabot noted only “majority-owned and controlled”subsidiaries are included in the consolidation. Is it possible that majority ownership (greater than 50 percent) in a subsidiary would not constitute control? Discuss.

b. Why are subsidiaries that are less than 100 percent-owned included in the consolidation?

c. Cabot used the equity method to account for investments in 20- to 50 percent owned affiliates. Explain how consolidation of these affiliates would affect Cabot’s reported total assets, total liabilities, shareholders’ equity, and net income.

d. Cabot stated that all significant intercompany transactions were eliminated.

Provide several examples of intercompany transactions that require elimination in order to consolidate affiliated firms.