Question

Consolidated amounts when affiliate's debt is acquired from non-affiliate
Assume that a Parent company owns 100 percent of its Subsidiary. On December 31, 2013, the Parent company had a $400,000 (face) bond payable outstanding with a carrying value of $420,000. The bond was originally issued to an unaffiliated company. On that same date, the Subsidiary acquired the bond for $399,000.

During 2013, the Parent company reported $180,000 of (pre-consolidation) income from its own operations (i.e., prior to any equity method adjustments by the Parent company) and after recording interest expense. The Subsidiary reported $100,000 of (pre-consolidation) income from its own operations. Related to the bond during 2013, the parent reported interest expense of $60,000. The unaffiliated company that held the bond prior to December 31, 2013 recorded interest income of $60,000. Determine the following amounts that will appear in the 2013 consolidated income statement:

Note: Use a negative sign with your answer to indicate a loss on constructive retirement of bond payable, if applicable.

Account	Amount
a. Interest income from bond investment	Answer
b. Interest expense on bond payable	Answer
c. Gain (Loss) on constructiveretirement of bond payable.	Answer
d. Consolidate net income	Answer

Answer 1