Company S is an 80%-owned subsidiary of Company P. Company S needed to borrow $500,000 on January
Question:
Company S is an 80%-owned subsidiary of Company P. Company S needed to borrow
$500,000 on January 1, 20X1. The best interest rate it could secure was 10% annual. Company P has a better credit rating and decided to borrow the funds needed from a bank at 8%
annual and then loaned the money to Company S at 9.5% annual.
a. Is Company S better off as a result of borrowing the funds from Company P?
b. What are the interest revenue and expense amounts recorded by Company P and Company S during 20X2?
c. How much interest expense and/or interest revenue should appear in the 20X1 consolidated income statement?
AppendixLO1
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Related Book For
Advanced Accounting
ISBN: 9780470087367
9th Edition
Authors: Paul M. Fischer, William J. Tayler, Rita H. Cheng
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