Since 2010, Holden has owned 100% of Jackson and uses the equity method to account for its investment in Jackson. Holden has a fiscal year end of December 31 and Jackson has a fiscal year end of October 31.
The following information is available:
Holden Net Income January 1 - October 31, 2012 $8,000,000 Holden Net Income November 1- December 31, 2012 $2,000,000 Jackson Net Income November 1- December 31, 2011 $200,000 Jackson Net Income January 1,- October 31, 2012 $1,000,000 Jackson Net Income November 1- December 31, 2012 $300,000 Holden is preparing consolidated financial statements for 2012. The last time Jackson issued financial statements was for the year ended October 31, 2011.
Answer the following questions:
1. Is it permissible for Holden to consolidate 12 months of net income for Jackson for the year ended October 31, 2012 with 12 months of Holden's net income for the period ended December 31, 2012. After indicating Yes or No, cut and paste the section of the FASB codification dealing with this question and highlight (or underline) the specific language you used to support your answer.
2. Prior to the end of 2012 is Holden permitted to change the fiscal year end of Jackson to December 31, 2012, and if so, is this to be treated as a change in accounting principle, a change in estimate or a change in reporting entity. Show the journal entry that will be made by Holden when this accounting change takes place. Cut and paste the section of the FASB codification dealing with this question and highlight (or underline) the specific language you used to support your answer?