Effect on consolidated net income of acquisition of affiliate\'s debt from non-a

Question

Effect on consolidated net income of acquisition of affiliate's debt from non-affiliate A Parent Company owns 100 percent of its Subsidiary. During 2015, the Parent company reports net income (by itself, without any investment income from its Subsidiary) of $500,000 and the subsidiary reports net income of $200,000 The parent had a bond payable outstanding on January 1, 2015, with a carry value equal to $420,000. The Subsidiary acquired the bond on January 1, 2015 for $395,000. During 2015, the Parent reported interest expense (related to the bond) of $35,000, while the Subsidiary reported interest income (related to the bond) of $32,000. What is consolidated net income for the year ended December 31, 2015? $700,000 O$703,000 $725,000 0$728,000

Explanation / Answer

Consolidated income will be equal to sum total of the income of parent and subsidiary after adjusting interest income and expense related to the bond. The consolidated income is calculated as follows:-

Consolidated income for the year ended Dec 31, 2015

= Parent's Net income+Subsidiary's Net income+Interest Expense-Interest Income

= $500,000+$200,000+$35,000-$32,000 = $703,000

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