The following items pertain to a parent company and its 60 percent owned subsidiary at year end. There are no cross guarantees of debt between the parent and subsidiary.
|
Parent |
Subsidiary |
|
|
Current assets |
$ 500,000 |
$1,000,000 |
|
Noncurrent assets(excluding subsidiary investment) |
5,000,000 |
2,000,000 |
|
Current liabilities |
750,000 |
250,000 |
|
Noncurrent liabilities |
2,000,000 |
750,000 |
|
Revenues |
1,700,000 |
1,500,000 |
|
Expenses |
1,600,000 |
900,000 |
|
Dividends |
100,000 |
600,000 |
Required:
Explain and illustrate how consolidated reporting using the previous data can be misleading.