ADVANCED ACCOUNTING CHAPTERS 15-19
12th Edition
ISBN: 9781337046251
Author: FISCHER
Publisher: CENGAGE C
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Chapter 5, Problem 1UTI
To determine
To determine:.The method, which would maintain subsidiary company as the debtor.
Introduction: Consolidation is a process in which financial statements of subsidiary is merged with financial statements of the parent. In this process, effect of intercompany transactions are eliminated.
Expert Solution & Answer
Answer to Problem 1UTI
In both of the methods subsidiary company would continue to be a debtor.
Explanation of Solution
Parent company acquired 80% interest in subsidiary company. Subsidiary company has availed loan of $1,000,000 having ten years of maturity at an interest rate of 8%. Parent company can borrow at an interest rate of 6%.
Parent company has two options to reduce the borrowing cost of the company which are discussed as follows:
- To buy outstanding bonds of subsidiary company from open market: In this case, parent company will buy bonds from outsiders that has been issed by the subsidiary. After purchase of such bonds it will be shown as debt investment of the company. Parent would be entitled to receive interest and maturity value from subsidiary company. Therefore, subsidiary compny would continue to be a debtor.
- To lend money to subsidiary company so that subsidiary company can redeem its bonds: In this case, a fresh loan would be issued to the subsidiary for redemption of old bonds. In this case as well, subsidiary company would be required to pay interest and principal amount to the parent company. Therefore, subsidiary compny would continue to be a debtor.
Conclusion:Therefore, in both the cases subsidiary would continue to be a debtor.
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Subsidiary Company S has $1,000,000 of bonds outstanding. The bonds have 10 years to maturity and pay interest at 8% annually. The parent has an average annual borrowing cost of 6% and wishes to reduce the interest cost of the consolidated company. What methods could be used to maintain the subsidiary as the debtor?
Company P purchased $100,000 of subsidiary Company S’s bonds for $96,000 on January 1, 2015, when the bonds had five years to maturity. The bonds had been issued at face value and pay interest at 8% annually. What will the impact of this transaction be on consolidated net income for the current and future four years? Assuming a 20% noncontrolling interest, how will the NCI be affected in the current and next four years? Quantify your response.
Xonobo Limited is the parent company in a large, consolidated group. Vincent, the financial controller at Xonobo, is reviewing Xonobo’s financial instruments to determine their correct classification under AASB 9 Financial Instruments. Vincent has the following information from the treasury team concerning two financial assets:
A bond with a face value of $500,000 and a four-year maturity was acquired on 1 July 2020. Interest is received at 2% per annum and paid in arrears every six months. Xonobo uses the bonds to manage cash flow requirements through collecting the interest cash flows or selling the bonds as required.
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Determine the correct classification of each financial instrument for the year ended 30 June 2021 in Xonobo’s individual financial statements (i.e. not consolidated financial…
Chapter 5 Solutions
ADVANCED ACCOUNTING CHAPTERS 15-19
Ch. 5 - Prob. 1UTICh. 5 - Subsidiary Company S has $1000,000 of bonds...Ch. 5 - Plessor Industries acquired 80% of the outstanding...Ch. 5 - Company P purchased $100,000 of subsidiary Company...Ch. 5 - Prob. 5UTICh. 5 - Prob. 6UTICh. 5 - Prob. 7UTICh. 5 - Prob. 1ECh. 5 - Prob. 2ECh. 5 - Prob. 3.1E
Ch. 5 - Prob. 3.2ECh. 5 - Prob. 4ECh. 5 - Carlton Company is an 80%- owned subsidiary of...Ch. 5 - Carlton Company is an 80%- owned subsidiary of...Ch. 5 - Prob. 6.1ECh. 5 - Prob. 6.2ECh. 5 - Prob. 7.1ECh. 5 - Prob. 7.2ECh. 5 - Prob. 7.3ECh. 5 - Prob. 8.1ECh. 5 - Prob. 8.3ECh. 5 - Prob. 9ECh. 5 - Prob. 5.1.1PCh. 5 - Prob. 5.1.2PCh. 5 - Prob. 5.2PCh. 5 - Prob. 5.3PCh. 5 - Prob. 5.4PCh. 5 - Prob. 5.5PCh. 5 - Prob. 5.6PCh. 5 - Prob. 5.7PCh. 5 - Prob. 5.8.1PCh. 5 - Prob. 5.8.2PCh. 5 - Prob. 5.9PCh. 5 - Prob. 5.10PCh. 5 - Prob. 5.14PCh. 5 - Prob. 5.2.1CCh. 5 - Prob. 5.2.2CCh. 5 - Prob. 5.3.1CCh. 5 - Prob. 5.3.2CCh. 5 - Prob. 5.3.3CCh. 5 - Prob. 5.3.4C
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