When you own more than 50% of another company and consolidate its financials, which of the following statements is true?

• A. You consolidate 100% of the subsidiary and keep its equity as-is
• B. You consolidate 100% of the subsidiary and create a Noncontrolling Interest on the balance sheet to reflect the portion you don't own, subtract the noncontrolling share of net income on the income statement, and add it back in cash flow from operations
• C. You do not consolidate; you treat it as an investment
• D. You consolidate only the parent's share

Answer: (B)

When you have control, you consolidate the entire subsidiary. This means bringing all of the subsidiary’s assets and liabilities onto the parent’s consolidated financial statements, not just the portion you own. Because you don’t own 100% of the subsidiary, you recognize a noncontrolling interest in equity to reflect the portion you don’t own.

On the income statement, you present the total consolidated net income, but you subtract the noncontrolling interest’s share to arrive at net income attributable to owners of the parent. In the cash flow statement, that noncontrolling share is added back in the operating section to ensure the cash flows reported relate to the parent’s ownership, so only the parent’s cash effects are reflected there.

This approach correctly mirrors control: you consolidate everything for the economic entity, show the portion of equity that belongs to others (noncontrolling interest), and allocate income between the parent and noncontrolling owners. Treating the subsidiary as a mere investment, or consolidating only the parent’s share, would misstate both the balance sheet and the income statement.