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A company buys 100 percent of another company and consolidates financial statements. The parent company consolidates and separately identifies a supply contract asset. How would the company account and/or report the disposal of the contract before the year ends on the year's financial statements including its own books and the consolidated statements. how would it affect both balance sheet and income statement.
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Consolidated financial statements are the combined financial statements of a parent company and its subsidiaries. Consolidated financial statements present an aggregated look at the financial position of a parent company and its subsidiaries, and they provide a picture of the overall health of an entire group of companies as opposed to one company's standalone position.
The consolidated financial statements only report income and expense activity from outside of the economic entity. Any revenue earned by the parent company that is an expense of a subsidiary is omitted from the financial statements. This is because the net change in the financial statements is $0. The revenue generated from one legal entity is offset by the expenses in another legal entity. To avoid overinflating revenues, all internal revenues are omitted.
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