Consolidation worksheet for gain on constructive retirement of subsidiary's debt with no

AAP$-$Equity method

Assume that a Parent company acquires an $80$ percent interest in its Subsidiary on January $1,2018.$

On the date of acquisition, the fair value of the $80$ percent controlling interest was $$768,000,$ and the

fair value of the $20$ percent noncontrolling interest was $$192,000.$ On January $1,2018,$ the book value

of net assets equaled $$960,000,$ and the fair value of the identifiable net assets equaled the book value

of identifiable net assets $($i$.$e$.,$ there was no AAP or Goodwill$).$

On December $31,2019,$ the Subsidiary company issued $$960,000($face$)8\%,$ five$-$year bonds

to an unaffiliated company for $$998,400.$ The bonds pay interest annually on December $31,$ and the

bond premium is amortized using the straight$-$line method. This results in annual bond$-$payable pre$-$

mium amortization equal to $$7,680$ per year.

On December $31,2021,$ the Parent paid $$931,200$ to purchase all of the outstanding Subsidiary

company bonds. The bond discount is amortized using the straight$-$line method, which results in an$-$

nual bond$-$investment discount amortization equal to $$9,600$ per year.

The Parent and the Subsidiary report the following financial statements for the year ended De$-$

cember $31,2022$ :

Parent Subsidiary Dr Cr Consolidated

Income Statement $[$C$]$ Equity Income from Subsidiary

Sales $$5,400,000$ $$960,000$ $$6,360,000$ Income attributable to NCI

Cost of Goods Sold $(3,360,000)(600,000)(3,960,000)$ Dividends$-$ Subsidary

Gross Profit $2,040,000360,0002,400,000$ Investment in Subsidiary

Income $($loss$)$ from Subsidiary $75,264-[$C$]-75,264$ Noncontrolling Interest

Operating & other expenses $(1,680,000)(175,200)(1,855,200)$

Bond interest income $86,400[$IBOND$]86,400[$E$]$ Common Stock $($S$)$ @ BOY

Bond interest expense $(69,120)[$IBOND$]-(69,120)$ APIC

Net income $$521,664$ $$115,680637,344$ Retained Earnings $($S$)$ @ BOY

Income attributable to NCI $[$C$]--$ Investment in Subsidiary @BOY

Income attributable to Controlling Int $$637,344$ Noncontrolling interest @ BOY

Retained Earnings Statement $[$Ibond$]$ Bond payable $($net$)$

Beginning Retained Earnings $$1,893,408$ $$288,960[$E$]-$ $$2,182,368$ Interest income

Net income $521,664115,680637,344$ Investment in bonds $($net$)$

Dividends Declared $(240,000)(48,000)[$C$]-(288,000)$ Interest expense

Ending Retained Earnings $$2,175,072$ $$356,640$ $$2,531,712$ BOY investment in Subsidiary

Balance Sheet

Cash $$840,000$ $$480,000$ $$1,320,000$

Accounts receivable $1,020,000720,0001,740,000$ Original bond table Cash Amort Inter exp Carrying

Inventories $1,080,000960,0002,040,00012\mathrm{.}31\mathrm{.}19998,400$

Property, Plant & Equipment, net $2,400,0001,800,0004,200,00012\mathrm{.}31\mathrm{.}2076,8007,68069,120990,720$

Investment in Subsidiary $934,272[$C$]-934,27212\mathrm{.}31\mathrm{.}2176,8007,68069,120983,040$

$[$E$]-12\mathrm{.}31\mathrm{.}2276,8007,68069,120975,360$

$[$IBOND$]-12\mathrm{.}31\mathrm{.}2376,8007,68069,120967,680$

Investment in Bond $($net$)940,800[$IBOND$]-940,80012\mathrm{.}31\mathrm{.}2476,8007,68069,120960,000$

Total Assets $$7,215,072$ $$3,960,000$ $$11,175,072$ Purchased bonds Cash Amort Int Expense carrying

$12\mathrm{.}31\mathrm{.}21931,200$

Accounts Payable $$840,000$ $$540,000$ $$1,380,00012\mathrm{.}31\mathrm{.}2276,8009,60086,400940,800$

Other current liabilities $1,080,000780,0001,860,00012\mathrm{.}31\mathrm{.}2376,8009,60086,400950,400$

Bond Payable $($net$)975,360[$IBOND$]-975,36012\mathrm{.}31\mathrm{.}2476,8009,60086,400960,000$

Other long$-$term liabilities $1,200,000540,0001,740,000$

Common Stock $720,000168,000[$E$]-888,000$

APIC $1,200,000600,000[$E$]-1,800,000$

Retained Earnings $2,175,072356,6402,531,712$

Noncontrolling Interest $[$C$]--$

$[$E$]-$

Total Liabilities and Equity $$7,215,072$ $$3,960,00000$ $$11,175,072$