Chapter 6 Homewo on January 1, 2010, parent lends 70% owned subsidiary S5,000 00

Question

Chapter 6 Homewo on January 1, 2010, parent lends 70% owned subsidiary S5,000 000 at 6% annual interest fr two years. Subsidiary pays the accrued interest at the end of each year. Answer the fol a. How much interest income is recorded on the Parent's books in 2010. b. How much interest expense is recorded on the subsidiary's books in 2010. c. What journal entry did the parent record on January 1, 2010 1, Dr. Cr. What journal entry did the subsidiary record on January 1, 2010 Dr. d. What consolidation worksheet entry is recorded at December 31, 2010 to eliminate the intercompany receivablé and payable. Dr. e. Cr f What consolidation worksheet entry is recorded at December 31, 2010 to eliminate the intercompany interest income and interest expense Cr., 8 How much is consolidated loan receivable at December 31, 2010 h. How much is consolidated loan payable at December 31, 2010 i. How much is consolidated interest income at December 31, 2010 j. How much is consolidated interest expense at December 31, 2010 k. Assume the subsidiary had no other transactions in 2010. How much is noncontrolling interest in subsidiary net income Apple owns 80% of Pear, Apple had a bond payable outstanding on January 1, 2010 with a book value of $212,000. Pear purchases the bond in the open market for $199,000. How much is the gain or loss on retirement of the bond (show your calculation) 2. Same facts as #2 with Pear reporting interest income of S22.000 and Apple reporting interest expense of $21,000. How much is consolidated income in 2010. 3. 4. Which special purpose entities must be consolidated 5. Who is required to consolidate a variable interest entity if a primary beneficiary exists

Explanation / Answer

1.a. Interest income in parent's books in 2010= $5,000,000*6% = $300,000

1.b. Interest expense in subsidiary's books in 2010= $5,000,000*6% = $300,000

1.c. Dr. Loan receivable 5,000,000$

Cr. Bank 5,000,000$

(loan given to subsidiary)

1.d. Dr. Bank 5,000,000$

Cr. Loan payable 5,000,000$

(loan taken from hoding company)

1.e. Dr. Loan payable 3,500,000$

Cr. Loan receivable 3,500,000$

(Loan given to 70% owned subsidiary eliminated as at year end)

1.f. Dr. Interest income 210,000$

Cr. Interest expense 210,000$

(Inter company interet income and expense elimiated as at year end)

1.g. Consolidated loan receivable as at year end = 5,000,000$*30%= $1,500,000

1.h. Consolidated loan payable as at year end = 5,000,000$*30%= $1,500,000

1.i. Consolidated interest income as at yar end = 5,000,000$*30%*6% = $90,000

1.j. Consolidated interest expense as at yar end = 5,000,000$*30%*6% = $90,000

1.k. Non controlling interest in subsidiary net income = $90,000

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