On June 30, 2013 Tulip Ltd. issued one hundred $1,000 bonds with an interest rate of 7% p.a. payable semi-annually on December 31 and June 30 of each year. Crockus Inc., a wholly-owned subsidiary of Tulip Ltd., acquired 75% of the bonds issued. What are some of the December 31, 2013 adjustments required in preparation for the consolidated financial statements?

Question

Quizplus · Accepted Answer

Since Crockus Inc. acquired 75% of the bonds issued, the consolidated financial statements must take into account this ownership percentage. Therefore, the adjustment required is to decrease the Bonds Payable and Bond Investment by 75% of their respective balances. Additionally, since the interest payments are made semi-annually, only half of the interest for the first period (from June 30 to December 31, 2013) should be recorded. Therefore, the adjustment required is to decrease Interest Payable and Interest Receivable by 75% of half the interest payment ($2,625). Hence, the correct choice is option C.