Powell Company owns an 80% interest in Sauter, Inc. On January 1, 20X1, Sauter i
ID: 2604797 • Letter: P
Question
Powell Company owns an 80% interest in Sauter, Inc. On January 1, 20X1, Sauter issued $400,000 of 10-year, 12% bonds at a premium of $25,000. On December 31, 20X5, 5 years after original issuance, Powell purchased all of the outstanding bonds for $390,000. Both firms use the straight-line method of amortization.
Refer to Powell Company. Bond interest expense included as an adjustment in the 20X5 subsidiary income distribution schedule is ____.
a.
$48,000
b.
$45,500
c.
$47,500
d.
$0
Show computations.
a.
$48,000
b.
$45,500
c.
$47,500
d.
$0
Show computations.
Explanation / Answer
After 5 years all of the premium of 25000$has been amortized, so the bonds are recorded at par in balance sheet.
Interest expense = 4,00,000*0.12= 48,000$
Which will adjusted as inter company adjustments in consolidated balance sheet.
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