A is corrent. Combined financial statements is the term used to describe financial statements prepared for companies which are owned by the same parent company or individual. They are prepared by combining all of the subsidiaries’ financial statement classifications. Intercompany transactions should be eliminated in the same way as consolidated statements. Combining the stockholders’ equity accounts of Able and Baker results in a total of $430,000 ($100,000 + $20,000 + $300,000 + $10,000). The intercompany balances (investment in Baker, $4,000; and Common Stock, $4,000) must be eliminated, which reduces combined stockholders’ equity to $426,000 ($430,000 – $4,000).
B is incorrect because combined equity equals the total of Able and Baker ($100,000 + $300,000 + $20,000 + $10,000 = $430,000) less the intercompany transaction ($430,000 - $4,000 = $426,000).
C is incorrect because it fails to eliminate the intercompany transaction of $4,000.
D is incorrect because it fails to consolidate Baker less the intercompany transaction.
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