Master Corporation owns 85 percent of Servant Corporation's voting shares. On January 1, 20X8, Master Corporation sold $200,000 par value 8 percent bonds to Servant for $245,000. The bonds mature in 10 years and pay interest semiannually on January 1 and July 1.
Based on the information given above, what amount of investment in bonds will be eliminated in the preparation of the 20X8 consolidated financial statements?
A) $240,500
B) $200,000
C) $245,000
D) $211,500

Question

Quizplus · Accepted Answer

The correct answer is A.The investment in bonds will be eliminated in the preparation of the 20X8 consolidated financial statements by 85 percent, which is the percentage of ownership that Master Corporation has in Servant Corporation. Therefore, the amount of investment in bonds that will be eliminated is $245,000 * 0.85 = $208,250.

Master Corporation Owns 85 Percent of Servant Corporation's Voting Shares