Company S is a 100%-owned subsidiary of Company P. On January 1, 20X9, Company S has $100,000 of 8% face rate bonds outstanding. The bonds had 5 years to maturity on January 1, 20X9, and had an unamortized discount of $5,000. On that date, Company P purchased the bonds for $99,000. The net adjustment needed to consolidate retained earnings on December 31, 20X9 is ____.

Question

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The bonds were purchased at a discount of $1,000 ($99,000 - $100,000). This discount will be amortized over the remaining life of the bonds, which is 5 years. The annual amortization is $200 ($1,000 / 5). The net adjustment needed to consolidate retained earnings on December 31, 20X9 is $0 because the amortization of the discount will increase the carrying value of the bonds by $200 and decrease retained earnings by $200.

Company S Is a 100%-Owned Subsidiary of Company P