Question
Parent Company owns 75% of Subsidiary Company. On the Open market Parent buy all bonds of the Subsidiary for $900,000. The par value of these
Parent Company owns 75% of Subsidiary Company. On the Open market Parent buy all bonds of the Subsidiary for $900,000. The par value of these bonds on ledger for Subsidiary is $800,000. Interest is paid annually at 7%. On the books of the Subsidiary there is an unamortized discount of $60,000. The tax rate is 35%.
Required:
What would be the pre-tax gain or loss to the consolidated entity on the intracompany sale of the bond?
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Cornerstones of Managerial Accounting
Authors: Maryanne M. Mowen, Don Hanson, Dan L. Heitger, David McConomy, Jeffrey Pittman
2nd Canadian edition
978-0176721237, 978-0176530884
