Question

Consolidated amounts when affiliate’s debt is acquired from non-affiliate

Assume that a Parent company owns 80 percent of its Subsidiary. On January 1, 2019, the Parent company had a $300,000 (face) 8 percent bond payable outstanding with a carrying value of $286,800. Several years ago, the bond was originally issued to an unaffiliated company for 92 percent of par value. On January 1, 2019, the Subsidiary acquired the bond for $274,500.

During 2019, the Parent company reported $1,140,000 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 $330,000 of (pre-consolidation) income from its own operations after recording interest income. Related to the bond during 2019, the parent reported interest expense of $25,800 while the subsidiary reported interest income of $27,000.

Determine the following amounts that will appear in the 2019 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	?
b. Interest expense on bond payable	?
c. Gain (Loss) on constructive retirement of bond payable.	?
d. Controlling interest in consolidated net income	?
e. Noncontrolling interest in consolidated net income	?

Answer 1