CPA Exam Lab
Section 1: 30–40%1A6

Consolidated Financial Statements

Consolidations is one of the most calculation-heavy topics in FAR — expect a sim that asks you to eliminate intercompany transactions and compute consolidated net income. The trap most candidates miss: even if Parent sold goods to Sub and Sub already sold them to outsiders, you still eliminate the original intercompany revenue and COGS. Also know the full goodwill method cold — AICPA tests NCI allocation constantly.

What AICPA Wants You to Know

  • 1Apply the consolidation requirement (control = >50% voting interest, or variable interest entity)
  • 2Eliminate intercompany transactions: sales, loans, dividends
  • 3Calculate noncontrolling interest (NCI) on the balance sheet and income statement
  • 4Recognize goodwill on acquisition and subsequent impairment testing
  • 5Distinguish consolidation from equity method and cost method