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Company S is a 100%-owned subsidiary of Company P. On January 1, Company S had $100.000 face value of 8% bonds outstanding. The bonds
Company S is a 100%-owned subsidiary of Company P. On January 1, Company S had $100.000 face value of 8% bonds outstanding. The bonds had 5 years to maturity and an unamortized discount of $5,000 as of that date. On January 1, Company P purchased the bonds for $99,000. The net adjustment to reduce consolidated net income for the year ended December 31 is a. $4,000 b. $3,200 c. $4,800 d. $5,000
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The net adjustment to reduce consolidated net income for the year ended December 31 can be calculated based on the acquisition of the bonds by Company P Lets analyze the impact of this transaction on the consolidated net income 1 Initial Bond Details Face Value 100000 Discount 5000 Maturity 5 years Interest Rate 8 2 Purchase by Company P Company P purchased the bonds for 99000 This transaction has an impact on the consolidated financial statement The net adjustment will account for the change in the value of the purchased bonds and the bond discount This change will directly impact the consolidated net income for the year ended December 31 3 Calculation The purchase price 99000 is less than the face value of the bonds 100000 so there is an immediate gain on the acquisition The unamortized discount 5000 also needs to be considered in the adjustment The net adjustment to reduce consolidated net income will account for the change in value due to the acquisition and the unamortized discount To calculate ...
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Advanced Accounting
Authors: Floyd A. Beams, Joseph H. Anthony, Bruce Bettinghaus, Kenneth Smith
11th Edition
978-0132568968, 9780132568968
