yodacaia

Your first understanding is correct.

However, there is a correction needed in your paragraph that starts "After reading what....".

Preparation of consolidated financial statements does not makes two entities as one. Entities continue to prepare their individual financial statements every year. A third set of financial statements (called consolidated financial statements) is also prepared every year.

Consolidated financial statements reflect total equity in hypothetically combined entities. This includes equity of controlling as well as non-controlling stockholders.