Question
Assume that a parent company owns 75 percent of its subsidiary. On January 1, 2016, the parent company had a $100,000 (face value) 8% outstanding
Assume that a parent company owns 75 percent of its subsidiary. On January 1, 2016, the parent company had a $100,000 (face value) 8% outstanding bond payable with a carrying value of $94,000. Several years ago, the bond was originally issued to an unaffiliated company for 92% of par value.
On January 1, 2016, the subsidiary acquired the bond for $91,000. During 2016, the parent company reported $400,000 of (pre-consolidation) income from its own operations (prior to any equity method adjustments by the parent company) and after recording interest expense. The subsidiary reported $120,000 of (pre-consolidation) income from its operation after recording interest income. Related to the bond during 2016, the parent reported interest expense of $8,000 while the subsidiary reported interest income of $9,000.
Determine the following amounts that will appear in the 2016 consolidated income statement:
- Gain or loss on constructive retirement of bond payable
- Controlling interest share of income from consolidated net income (after non-controlling interest share of income in subsidiary)
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