. The method, which would maintain subsidiary company as the debtor. Introduction: Consolidation is a process in which financial statements of subsidiary is merged with financial statements of the parent. In this process, effect of intercompany transactions are eliminated.

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Answer 1

Question

Chapter 5, Problem 1UTI

To determine

To determine:.The method, which would maintain subsidiary company as the debtor.

Introduction: Consolidation is a process in which financial statements of subsidiary is merged with financial statements of the parent. In this process, effect of intercompany transactions are eliminated.

Expert Solution & Answer

Answer to Problem 1UTI

In both of the methods subsidiary company would continue to be a debtor.

Explanation of Solution

Parent company acquired 80% interest in subsidiary company. Subsidiary company has availed loan of $1,000,000 having ten years of maturity at an interest rate of 8%. Parent company can borrow at an interest rate of 6%.

Parent company has two options to reduce the borrowing cost of the company which are discussed as follows:

To buy outstanding bonds of subsidiary company from open market: In this case, parent company will buy bonds from outsiders that has been issed by the subsidiary. After purchase of such bonds it will be shown as debt investment of the company. Parent would be entitled to receive interest and maturity value from subsidiary company. Therefore, subsidiary compny would continue to be a debtor.
To lend money to subsidiary company so that subsidiary company can redeem its bonds: In this case, a fresh loan would be issued to the subsidiary for redemption of old bonds. In this case as well, subsidiary company would be required to pay interest and principal amount to the parent company. Therefore, subsidiary compny would continue to be a debtor.

Conclusion:Therefore, in both the cases subsidiary would continue to be a debtor.

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Students have asked these similar questions

Tech plc and Cap plc have a joint arrangement in which the former contributes PPEs and the later contributes the cash from its loan with a bank. After 10 years, Tech will keep PPEs and Cap will pay off the debt. Which of the following statements is/are incorrect? (i) IFRS require that Tech plc shall use full consolidation to account for the joint arrangement. (ii) IFRS require that Cap plc shall use the equity method to account for the joint arrangement. (iii) IFRS require that Tech plc and Cap plc shall report their own contributed assets and liabilities on their consolidated statement of financial position.

Katipunan Company has financial liability (accounted under amortized cost) with face amount of P5,000,000 and a carrying amount of P4,800,000. In addition, there is an unpaid interest of P250,000, accrued. The creditor agreed to the settlement of the bonds payable in exchange for 50,000 shares of P50 par value. The shares have current market value of P4,500,000. How much should be recorded as additional share premium as a result of the extinguishment of the liability?

Choose the correct. Dane, Inc., owns Carlton Corporation. For the current year, Dane reports net income (without consideration of its investment in Carlton) of $185,000 and the subsidiary reports $105,000. The parent had a bond payable outstanding on January 1, with a carrying amount of $209,000. The subsidiary acquired the bond on that date for $196,000. During the current year, Dane reported interest expense of $18,000 while Carlton reported interest income of $19,000, both related to the intra-entity bond payable. What is consolidated net income?a. $289,000b. $291,000c. $302,000d. $304,000

Answer 2

Question

Chapter 5, Problem 1UTI

To determine

To determine:.The method, which would maintain subsidiary company as the debtor.

Introduction: Consolidation is a process in which financial statements of subsidiary is merged with financial statements of the parent. In this process, effect of intercompany transactions are eliminated.

Expert Solution & Answer

Answer to Problem 1UTI

In both of the methods subsidiary company would continue to be a debtor.

Explanation of Solution

Parent company acquired 80% interest in subsidiary company. Subsidiary company has availed loan of $1,000,000 having ten years of maturity at an interest rate of 8%. Parent company can borrow at an interest rate of 6%.

Parent company has two options to reduce the borrowing cost of the company which are discussed as follows:

To buy outstanding bonds of subsidiary company from open market: In this case, parent company will buy bonds from outsiders that has been issed by the subsidiary. After purchase of such bonds it will be shown as debt investment of the company. Parent would be entitled to receive interest and maturity value from subsidiary company. Therefore, subsidiary compny would continue to be a debtor.
To lend money to subsidiary company so that subsidiary company can redeem its bonds: In this case, a fresh loan would be issued to the subsidiary for redemption of old bonds. In this case as well, subsidiary company would be required to pay interest and principal amount to the parent company. Therefore, subsidiary compny would continue to be a debtor.

Conclusion:Therefore, in both the cases subsidiary would continue to be a debtor.

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Answer 3

Question

Chapter 5, Problem 1UTI

To determine

To determine:.The method, which would maintain subsidiary company as the debtor.

Introduction: Consolidation is a process in which financial statements of subsidiary is merged with financial statements of the parent. In this process, effect of intercompany transactions are eliminated.

Expert Solution & Answer

Answer to Problem 1UTI

In both of the methods subsidiary company would continue to be a debtor.

Explanation of Solution

Parent company acquired 80% interest in subsidiary company. Subsidiary company has availed loan of $1,000,000 having ten years of maturity at an interest rate of 8%. Parent company can borrow at an interest rate of 6%.

Parent company has two options to reduce the borrowing cost of the company which are discussed as follows:

To buy outstanding bonds of subsidiary company from open market: In this case, parent company will buy bonds from outsiders that has been issed by the subsidiary. After purchase of such bonds it will be shown as debt investment of the company. Parent would be entitled to receive interest and maturity value from subsidiary company. Therefore, subsidiary compny would continue to be a debtor.
To lend money to subsidiary company so that subsidiary company can redeem its bonds: In this case, a fresh loan would be issued to the subsidiary for redemption of old bonds. In this case as well, subsidiary company would be required to pay interest and principal amount to the parent company. Therefore, subsidiary compny would continue to be a debtor.

Conclusion:Therefore, in both the cases subsidiary would continue to be a debtor.

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Answer 4

Question

Chapter 5, Problem 1UTI

To determine

To determine:.The method, which would maintain subsidiary company as the debtor.

Introduction: Consolidation is a process in which financial statements of subsidiary is merged with financial statements of the parent. In this process, effect of intercompany transactions are eliminated.

Expert Solution & Answer

Answer to Problem 1UTI

In both of the methods subsidiary company would continue to be a debtor.

Explanation of Solution

Parent company acquired 80% interest in subsidiary company. Subsidiary company has availed loan of $1,000,000 having ten years of maturity at an interest rate of 8%. Parent company can borrow at an interest rate of 6%.

Parent company has two options to reduce the borrowing cost of the company which are discussed as follows:

To buy outstanding bonds of subsidiary company from open market: In this case, parent company will buy bonds from outsiders that has been issed by the subsidiary. After purchase of such bonds it will be shown as debt investment of the company. Parent would be entitled to receive interest and maturity value from subsidiary company. Therefore, subsidiary compny would continue to be a debtor.
To lend money to subsidiary company so that subsidiary company can redeem its bonds: In this case, a fresh loan would be issued to the subsidiary for redemption of old bonds. In this case as well, subsidiary company would be required to pay interest and principal amount to the parent company. Therefore, subsidiary compny would continue to be a debtor.

Conclusion:Therefore, in both the cases subsidiary would continue to be a debtor.

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Answer 5

Chapter 5, Problem 1UTI

To determine

To determine:.The method, which would maintain subsidiary company as the debtor.

Introduction: Consolidation is a process in which financial statements of subsidiary is merged with financial statements of the parent. In this process, effect of intercompany transactions are eliminated.

Expert Solution & Answer

Answer to Problem 1UTI

In both of the methods subsidiary company would continue to be a debtor.

Explanation of Solution

Parent company acquired 80% interest in subsidiary company. Subsidiary company has availed loan of $1,000,000 having ten years of maturity at an interest rate of 8%. Parent company can borrow at an interest rate of 6%.

Parent company has two options to reduce the borrowing cost of the company which are discussed as follows:

To buy outstanding bonds of subsidiary company from open market: In this case, parent company will buy bonds from outsiders that has been issed by the subsidiary. After purchase of such bonds it will be shown as debt investment of the company. Parent would be entitled to receive interest and maturity value from subsidiary company. Therefore, subsidiary compny would continue to be a debtor.
To lend money to subsidiary company so that subsidiary company can redeem its bonds: In this case, a fresh loan would be issued to the subsidiary for redemption of old bonds. In this case as well, subsidiary company would be required to pay interest and principal amount to the parent company. Therefore, subsidiary compny would continue to be a debtor.

Conclusion:Therefore, in both the cases subsidiary would continue to be a debtor.

Answer 6

Chapter 5, Problem 1UTI

To determine

To determine:.The method, which would maintain subsidiary company as the debtor.

Introduction: Consolidation is a process in which financial statements of subsidiary is merged with financial statements of the parent. In this process, effect of intercompany transactions are eliminated.

Expert Solution & Answer

Answer to Problem 1UTI

In both of the methods subsidiary company would continue to be a debtor.

Explanation of Solution

Parent company acquired 80% interest in subsidiary company. Subsidiary company has availed loan of $1,000,000 having ten years of maturity at an interest rate of 8%. Parent company can borrow at an interest rate of 6%.

Parent company has two options to reduce the borrowing cost of the company which are discussed as follows:

To buy outstanding bonds of subsidiary company from open market: In this case, parent company will buy bonds from outsiders that has been issed by the subsidiary. After purchase of such bonds it will be shown as debt investment of the company. Parent would be entitled to receive interest and maturity value from subsidiary company. Therefore, subsidiary compny would continue to be a debtor.
To lend money to subsidiary company so that subsidiary company can redeem its bonds: In this case, a fresh loan would be issued to the subsidiary for redemption of old bonds. In this case as well, subsidiary company would be required to pay interest and principal amount to the parent company. Therefore, subsidiary compny would continue to be a debtor.

Conclusion:Therefore, in both the cases subsidiary would continue to be a debtor.

Answer 7

Chapter 5, Problem 1UTI

To determine

To determine:.The method, which would maintain subsidiary company as the debtor.

Introduction: Consolidation is a process in which financial statements of subsidiary is merged with financial statements of the parent. In this process, effect of intercompany transactions are eliminated.

Answer 8

Expert Solution & Answer

Answer to Problem 1UTI

In both of the methods subsidiary company would continue to be a debtor.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

Parent company acquired 80% interest in subsidiary company. Subsidiary company has availed loan of $1,000,000 having ten years of maturity at an interest rate of 8%. Parent company can borrow at an interest rate of 6%.

Parent company has two options to reduce the borrowing cost of the company which are discussed as follows:

To buy outstanding bonds of subsidiary company from open market: In this case, parent company will buy bonds from outsiders that has been issed by the subsidiary. After purchase of such bonds it will be shown as debt investment of the company. Parent would be entitled to receive interest and maturity value from subsidiary company. Therefore, subsidiary compny would continue to be a debtor.
To lend money to subsidiary company so that subsidiary company can redeem its bonds: In this case, a fresh loan would be issued to the subsidiary for redemption of old bonds. In this case as well, subsidiary company would be required to pay interest and principal amount to the parent company. Therefore, subsidiary compny would continue to be a debtor.

Conclusion:Therefore, in both the cases subsidiary would continue to be a debtor.

Answer 12

Ch. 5 - Prob. 1UTI Ch. 5 - Subsidiary Company S has $1000,000 of bonds...Ch. 5 - Plessor Industries acquired 80% of the outstanding...Ch. 5 - Company P purchased $100,000 of subsidiary Company...Ch. 5 - Prob. 5UTI Ch. 5 - Prob. 6UTI Ch. 5 - Prob. 7UTI Ch. 5 - Prob. 1E Ch. 5 - Prob. 2E Ch. 5 - Prob. 3.1E

. The method, which would maintain subsidiary company as the debtor. Introduction: Consolidation is a process in which financial statements of subsidiary is merged with financial statements of the parent. In this process, effect of intercompany transactions are eliminated.

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To determine:.The method, which would maintain subsidiary company as the debtor.

Introduction: Consolidation is a process in which financial statements of subsidiary is merged with financial statements of the parent. In this process, effect of intercompany transactions are eliminated.

Answer to Problem 1UTI

Explanation of Solution

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Chapter 5 Solutions

. The method, which would maintain subsidiary company as the debtor. Introduction: Consolidation is a process in which financial statements of subsidiary is merged with financial statements of the parent. In this process, effect of intercompany transactions are eliminated.

Videos

To determine:.The method, which would maintain subsidiary company as the debtor. Introduction: Consolidation is a process in which financial statements of subsidiary is merged with financial statements of the parent. In this process, effect of intercompany transactions are eliminated.

Answer to Problem 1UTI

Explanation of Solution

Want to see more full solutions like this?

Chapter 5 Solutions

To determine:.The method, which would maintain subsidiary company as the debtor.

Introduction: Consolidation is a process in which financial statements of subsidiary is merged with financial statements of the parent. In this process, effect of intercompany transactions are eliminated.