Needs for Consolidation

Part 1

Based on this week’s reading and weekly lecture, explain the difference between the cost method, the equity method, and the fair value method. Provide examples to support your explanations.

Part 2

At a recent staff meeting, the vice president of marketing appeared confused. The controller had assured him that the parent company and each of the subsidiary companies had properly accounted for all transactions during the year. After several other questions, he finally asked, “If it has been done properly, then why must you spend so much time and make so many changes to the amounts reported by the individual companies when you prepare the consolidated financial statements each month? You should be able to just add the reported balances together.”