Chapter 6, Problem 54E

To determine

Compute the amount of gain or loss on the constructive retirement of the bond reported in the consolidated income statement for the year ended Dec 31, 2019 assuming the straight line amortization.

1. a. On June 30, 2019, P issues directly to S bonds that have a par value of $ 100,000. S paid $ 104,000 for the bonds. The term of the bonds is I0 years and they have an 8 percent stated interest rate. Interest is paid annually on December 31.
2. b. On January 1, 2015, P issues to an unaffiliated company bonds that have a par value of $ 100,000. The unaffiliated company paid par value for the bonds. On December 31, 2019, S paid $70,000 for 70 percent of the outstanding bonds. The bond term is 10 years and they have an 8 percent stated interest rate. Interest is paid annually on December 31.
3. c. On January 1, 2015, P issues to an unaffiliated company bonds that have a par value of $100,000. The unaffiliated company paid I03 percent of par value for the bonds. Five years later, S paid $95,000 for all of the outstanding bonds. The bond term is I0 years and they have an 8 percent stated interest rate. Interest is paid annually on December 31.
4. d. On January J, 2015, S issues to an unaffiliated company bonds that have a par value of $100,000. The unaffiliated company paid 96 percent of par value for the bonds. Five years later, P paid $72, I00 for 70 percent of the outstanding bonds. The bond term is 10 years and they have an 8 percent stated interest rate. Interest is paid annually on December 31.
5. e. How would your answers to parts (a) through (d) change if the Parent company owned 90 percent of the Subsidiary instead of 100 percent