Saturn Corporation issued $300,000 par value 10-year bonds at 107 on January 1,20X3,which Star Corporation purchased.On July 1,20X7,Pluto Corporation purchased $120,000 face value of Saturn bonds from Star.The bonds pay 12 percent interest annually on December 31.The preparation of consolidated financial statements for Saturn and Pluto at December 31,20X9,required the following consolidation entry:

-Based on the information given above,what percentage of the subsidiary's ownership does the parent company hold?
A)75 percent
B)65 percent
C)80 percent
D)95 percent

Question

Saturn Corporation issued $300,000 par value 10-year bonds at 107 on January 1,20X3,which Star Corporation purchased.On July 1,20X7,Pluto Corporation purchased $120,000 face value of Saturn bonds from Star.The bonds pay 12 percent interest annually on December 31.The preparation of consolidated financial statements for Saturn and Pluto at December 31,20X9,required the following consolidation entry:
 
-Based on the information given above,what percentage of the subsidiary's ownership does the parent company hold?
A)75 percent 
B)65 percent 
C)80 percent 
D)95 percent

Quizplus · Accepted Answer

The purchase of $120,000 face value of bonds is equivalent to 65 percent of the total bond issuance ($120,000/$300,000 = 0.4 or 40%, and 100% - 40% = 60%, which represents the portion of the bonds still held by Star). Therefore, Pluto Corporation holds 40% ownership, which means that the parent company (presumably Saturn Corporation) holds 60% ownership. None of the given choices match this exact percentage, but B) 65 percent is the closest approximation.

Saturn Corporation Issued $300,000 Par Value 10-Year Bonds at 107