Search Company is a 90% owned subsidiary of Passage Company.On January 1, 2013, Search Company purchased for $680,000 bonds of Passage Company that had a carrying value of $725,000 (par value $700,000).The bonds mature on December 31, 2014.Both companies use the straight-line method of amortization and have a December 31 year-end.The increase in 2013 consolidated income (i.e., income before subtracting noncontrolling interest) is

Question

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When Search Company purchased the bonds, there was a difference between the cost of the bonds ($680,000) and their carrying value ($725,000) of $45,000. This difference represents the premium on the bonds. 
Since both companies use the straight-line method of amortization, the premium is amortized over the remaining life of the bonds (2 years). Thus, the amortization of the premium for 2013 is $45,000 / 2 = $22,500. 
Since Search Company is a 90% owned subsidiary, the consolidated income includes 90% of Search Company's income and 100% of Passage Company's income. 
Assuming that Passage Company's income is not affected by the bond purchase, the increase in consolidated income for 2013 is 90% of the amortization of the premium, or 90% of $22,500 = $20,250. 
However, the question asks for the increase in consolidated income before subtracting noncontrolling interest. Since Search Company is a 90% owned subsidiary, noncontrolling interest is equal to 10% of Search Company's income. Thus, the increase in consolidated income before subtracting noncontrolling interest is $20,250 / 0.9 = $22,500. 
Therefore, the correct answer is A) $45,000.

Search Company Is a 90% Owned Subsidiary of Passage Company