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Assume that a parent company owns 80 percent of its subsidiary. The parent company uses the...

Assume that a parent company owns 80 percent of its subsidiary. The parent company uses the equity method to account for its investment in subsidiary. On January 1, 2012, the parent company issued to an unaffiliated company $1,000,000 (face value) 10 year, 10 percent bond payable for a $61,000 premium. The bonds pay interest in December 31 of each year. On January 1, 2015, the subsidiary acquired 40 percent of the bonds for $386,000. Both companies use straight-line amortization. In preparing the consolidated financial statements for the year ended December 31, 2016, what is the consolidation entry adjustment?

Solutions

Expert Solution

Journal

Date

Particulars

Debit

Credit

31-Dec

$

$

Bonds A/c   ($1000000*0.40*0.80)

$                                 320,000.00

Premium on redemption of Bonds A/c ($61000*0.40*0.80)

$                                   19,520.00

To Investment in Bonds A/c (386000* 0.8)

$                      308,800.00

To Capital reserve A/c

$                        30,720.00

(Being consolidation entry for Bonds made)

ekkarill92 answered 1 year ago
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