evaluating consolidated statements cowl company a public company has been reporting 733632
Evaluating Consolidated Statements
Cowl Company, a public company, has been reporting losses for the last three years and has been unable to pay its bills from cash generated from its operations. On December 31, 20X4, Cowl’s president instructed its treasurer to transfer a large amount of cash to Cowl from Plum Corporation, which is 80 percent owned by Cowl. It appears Cowl will not return to profitability in the near future and may never be able to repay Plum. Cowl’s treasurer is concerned that, although cash will appear to be unchanged in the consolidated financial statements, the subsidiary has much less cash than it previously held and Plum’s noncontrolling shareholders might learn about the transfer and initiate a lawsuit or other action against Cowl’s management.
As a member of Cowl’s accounting department, you have been asked to determine whether information on the transfer will be shown in the consolidated cash flow statement or other financial statements and to search the FASB’s pronouncements and those of other authoritative bodies to see whether information germane to the noncontrolling shareholders of a subsidiary must be disclosed in cases such as this. Prepare a memo indicating your findings, and include citations to or quotations from relevant authoritative pronouncements.