Consolidation worksheet for gain on constructive retirement of parent's debt with no AAP-Equity method
Assume that a Parent company acquires a 70 percent interest in its Subsidiary on January 1, 2015. On the date of acquisition, the fair value of the 70 percent controlling interest was $364,000 and the fair value of the 30 percent noncontrolling interest was $156,000. On January 1, 2015, the book value of net assets equaled $520.000 and the fair value of the identifiable net assets (i.e., there was no AAP or Goodwill).
On December 31 2016, the Parent company issued $500,000 (face) 6 percent, five-year bonds to an unaffiliated company for $520,000. The bonds pay interest annually on December 31, and the bond premium is amortized using the straight-line method. This results in annual bond-payable premium amortization equal to $4,000 per year.
On December 31, 2018, the Subsidiary paid $485,000 to purchase all of the outstanding Parent company bonds. The bond discount is amortized using the straight-line method, which results in annual bond-investment discount amortization equal to $5,000 per year.
The Parent and the Subsidiary report the following financial statements for the year ended December 31 2019:
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