XYX is a manufacturing company that is expanding rapidly and is considering making some acquisitions of companies. The company wishes to diversify. In order to help the company make this decision, the Chief Financial Officer expects to have specific information on how the potential acquisitions will affect the completion of the financial reports.
XYX is considering diversifying its operations through the acquisition of an insurance company and a timber company. The CFO wants to know how the accounts of these two companies, which are substantially different subsidiaries, will be reported in the consolidated financial statements.
Investigate the Accounting Standards Codification to see what guidance is provided on this subject and prepare a two-page memo, addressed to the CFO with the information found. Include in the memorandum at least two examples of situations in which it would be appropriate to combine similar accounts of subsidiaries.