What assets, liabilities, and equity does the consolidated balance sheet include when a parent company does not own 100% of a subsidiary?

The correct answer indicates that all of the subsidiary’s assets and liabilities are included in the consolidated balance sheet, but not its equity. This approach is grounded in the consolidation accounting principles, which require consolidating the financial statements of a parent company and its subsidiaries to present the financial position and results of operations as if they are a single economic entity.

When a parent company owns less than 100% of a subsidiary, it must report all assets and liabilities of the subsidiary on its consolidated balance sheet to reflect the financial status of the entire group of companies. While the parent's claim on the net assets of the subsidiary will be adjusted by recognizing non-controlling interest (which represents the equity interest in the subsidiary not owned by the parent), the full amount of the subsidiary's assets and liabilities will still be reported in the consolidated financial statements. This practice provides a more comprehensive view of the company's financial health to investors and other stakeholders.

The options referring to only the parent’s equity, only the fair value of the assets acquired, or solely the non-controlling interest do not accurately represent the consolidation principles. They misinterpret how to account for the subsidiary’s financials by limiting the scope of recognition for the subsidiary's total assets and liabilities, which obscures the complete picture of