Highlight, Inc., owns all outstanding stock of Kiort Corporation. The two compan

Question

Highlight, Inc., owns all outstanding stock of Kiort Corporation. The two companies report the following balances for the year ending December 31, 2017:

Note: Parentheses indicate a credit balance.

On January 1, 2017, Highlight acquired on the open market bonds for $108,000 originally issued by Kiort. This investment had an effective rate of 8 percent. The bonds had a face value of $100,000 and a cash interest rate of 9 percent. At the date of acquisition, these bonds were shown as liabilities by Kiort with a book value of $84,000 (based on an effective rate of 11 percent).

Determine the balances that should appear on a consolidated income statement for 2017.

Highlight Kiort Revenues and interest income $ (670,000 ) $ (390,000 ) Operating and interest expense 540,000 221,000 Other gains and losses (120,000 ) (32,000 ) Net income $ (250,000 ) $ (201,000 )

Explanation / Answer

SOLUTION:

Particulars Amount Working Revenues and Interest Income 1,051,360 670,000 + 390,000 - (108,000 * 8%) Operating and interest expense 751,760 540,000 + 221,000 - (84,000 * 11%) Other gains and losses 152,000 120,000 + 32,000 Rretirement of debt-Loss 24,000 108,000 - 84,000 Net income 427,600

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