During the year ended 30 June 2014, Parent company guarantees borrowings of Subsidiary company which amounts to $1,000,000. At the time of the guarantee, Subsidiary’s’ financial position was sound. During the year ended 30 June 2015, the financial condition of Subsidiary company deteriorates and at 30 June 2015 Subsidiary company files for protection from its creditors. Requirements: 1) How should this be treated in Parent’s financial statements for the year ended i) 30 June 2014 and ii) 30 June 2015.

During the year ended 30 June 2014, Parent company guarantees borrowings of Subsidiary company which amounts to $1,000,000. At the time of the guarantee, Subsidiary’s’ financial position was sound. During the year ended 30 June 2015, the financial condition of Subsidiary company deteriorates and at 30 June 2015 Subsidiary company files for protection from its creditors. Requirements: 1) How should this be treated in Parent’s financial statements for the year ended i) 30 June 2014 and ii) 30 June 2015.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable

Section: Chapter Questions

Problem 12C

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During the year ended 30 June 2014, Parent company guarantees borrowings ofSubsidiary company which amounts to $1,000,000. At the time of the guarantee,Subsidiary’s’ financial position was sound. During the year ended 30 June 2015, thefinancial condition of Subsidiary company deteriorates and at 30 June 2015Subsidiary company files for protection from its creditors. How should this be treated in Parent’s financial statements for the year endedi) 30 June 2014 and ii) 30 June 2015.
During the year ended 30 June 2014, Parent company guarantees borrowings of Subsidiary company which amounts to $1,000,000. At the time of the guarantee, Subsidiary’s’ financial position was sound. During the year ended 30 June 2015, the financial condition of Subsidiary company deteriorates and at 30 June 2015 Subsidiary company files for protection from its creditors. Requirements: 1) How should this be treated in Parent’s financial statements for the year ended i) 30 June 2014 ii) 30 June 2015.
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