A Parent Company owns 100 percent of its Subsidiary. During 2015, the Parent com

Question

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?

A. 700,000

B. 703,000

C. 725,000

D. 728,000

Explanation / Answer

income of the parent=$ 500,000

income of the subsidary= $ 200,000

consolidated income of the parent and subsidary = $ 700,000

difference in interest expense for the bond = $ 35000 - $32000 = $3000

hence consolidated net income = $ 703,000

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