Consolidated financial statements are typically prepared when one company has a controlling interest in another unless

 Consolidated financial statements are typically prepared when one company has a controlling interest in another unless

Multiple Choice

The subsidiary is a finance company.


The fiscal year-ends of the two companies are more than three months apart.


Circumstances prevent the exercise of control. Correct

The two companies are in unrelated industries, such as real estate and manufacturing.

Explanation
2.

Under certain circumstances, a company can lose the ability to exercise control of a subsidiary even when a controlling interest is held. For example, if the subsidiary were under a legal reorganization or bankruptcy. As long as control cannot be exercised, consolidated financial statements would not be prepared.

(The subsidiary is a finance company.) Incorrect. A finance company can be consolidated.
(The fiscal year-ends of the two companies are more than three months apart.) Incorrect. Consolidation can still occur even when the fiscal year-ends of the two companies are more than three months apart as long as the subsidiary adjusts its fiscal year-end to match the parent.
(The two companies are in unrelated industries, such as real estate and manufacturing.) Incorrect. There is no requirement that the parent and subsidiary be in related industries.