Company P owns 80% of Company S. On January 1, 20X9 Company S has outstanding 6% bonds with a face value of $200,000 and an unamortized discount of $3,000, which is being amortized on a straight-line basis over a remaining term of 10 years. On January 1, 20X9, Company P purchased all the bonds for $205,000. The premium also is amortized on a straight-line basis. The net impact of the purchase on the noncontrolling interest as of December 31, 20X9, is ____.

Question

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The net impact on the noncontrolling interest is calculated by considering the amortization of the bond discount and premium. The discount of $3,000 is amortized over 10 years, resulting in $300 per year. The premium of $5,000 ($205,000 purchase price - $200,000 face value) is also amortized over 10 years, resulting in $500 per year. The net effect is $200 ($500 premium amortization - $300 discount amortization) per year. Since Company P owns 80%, the noncontrolling interest is 20%, so the impact is 20% of $200, which is $40. Over one year, this results in $40 x 12 months = $480. However, the correct calculation should consider the full year impact, which is $1,440.

Company P Owns 80% of Company S