. 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.

Question

Want to see more full solutions like this?

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.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

1. Computational. On January 1, 20x1, ABC purchased bonds with face amount of P5,000,000. The entity paid P4,700,000 plus transaction cost of P42,130 for the bond investment. The business model of the entity in managing the financial asset is to collect contractual cash flows that are solely payment of principal and interest and also to sell the bonds the open market. The bonds mature on December 31, 20x3 and pays 6% interest annually on December 31 each year with 8% effective interest rate (after incorporating the transaction cost on initial recognition). The bonds are quoted at 106 and 108 on December 31, 20x1 and December 31, 20x2. The bonds are sold at 103 on July 1, 20x3, excluding accrued interest. Use 4-decimal present value factor. For the year ended December 31, 20x3, how much is the total impact to profit or loss as a result of the business model of ABC in holding this investment? (sample answer: 2,350,450.55)

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?

N company purchased debt investment at amortized cost at a discount of P20,000. Subsequently, N sold these bonds at a premium of P28,000. During the period the N held this investment, amortization of discount amounted to P4,000. How much is the gain/loss on the sale of the debt investment?

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.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

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.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

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.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

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.

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

. 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.