Assume that a parent company owns 75 percent of its subsidiary. On January 1, 20

Question

Assume that a parent company owns 75 percent of its subsidiary. On January 1, 2016, the parent company had a $100,000 (face) 8 percent bond payable outstanding with a carrying value of $96,600. Several years ago, the bond was originally issued to an unaffiliated company for 92% of par value. On January 1, 2016, the subsidiary acquired the bond for $92,000. During 2016, the parent company reported $400,000 of (pre-consolidation) income from its own operations (prior to any equity method adjustments by the parent company) and after recording interest expense. The subsidiary reported $120,000 of (pre-consolidation) income from its operation after recording interest income. Related to the bond during 2016, the parent reported interest expense of $8,500 while the subsidiary reported interest income of $9,200. Determine the following amounts that will appear in the 2016 consolidated oncome statement:

a.) Gain or loss on constructive retirement of bond payable

b.) Controlling interest share of income from consolidated net income (after noncontrolling interest share of income in subsidiary)

Explanation / Answer

Consolidated net income:

= 400,000+120,000+8500-9200+(96600-92000) = 523900

a.) Gain or loss on constructive retirement of bond payable

= $96,600 - $92,000

= $4600

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