Consolidation adjustment necessary when affiliate's debt is acquired from non-affiliate Assume that aParent company owns 65 percent of its Subsidiary. The parent company uses the equity method toaccount for its Equity investment. On January 1, 2015, the Parent company issued to an unaffiliatedcompany $2,000,000 (face) 10 year, 10 percent bonds payable for a $100,000 premium. The bonds payinterest on December 31 of each year. On January 1, 2018, the Subsidiary acquired 30 percent of thebonds for $572,000. Both companies use straight-line amortization. In preparing the consolidatedfinancial statements for the year ended December 31, 2019, what consolidating entry adjustment isnecessary for the beginning-of-year Equity investment balance? $Answer Answer Credit

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Answered: Consolidation adjustment necessary when…

Financial Accounting

14th Edition

ISBN:9781305088436

Author:Carl Warren, Jim Reeve, Jonathan Duchac

Publisher:Carl Warren, Jim Reeve, Jonathan Duchac

Chapter15: Investments And Fair Value Accounting

Section: Chapter Questions

Problem 2E

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Transfer between Categories On December 31, 2018, Leslie Company held an investment in bonds of Kaufmann Company which it categorized as being held to maturity. At that time, the 8%, 100,000 face value bonds had a carrying value of 107,023.56 and were being amortized using the effective interest method based on a market rate of 7%. Interest on these bonds is paid annually each December 31. On December 31, 2019, after recording the interest earned, Leslie decided to reclassify the Kaufmann bonds to its available-for-sale category in anticipation of a major restructuring. At that time, the ending quoted market price for the bonds was 105,000. Required: Prepare the journal entries on December 31, 2019, to record the interest earned and the reclassification.
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