Gill Ltd. is the wholly owned subsidiary of Basaraba Ltd. Gill purchased all of Basaraba's outstanding bond issue on the open market at a discount. The bonds have an unamortized premium attached. This transaction, in effect, retires the bond and results in a gain. How should the gain be shown?

Question

Quizplus · Accepted Answer

The gain on the retirement of the bond will only appear on Basaraba's consolidated statement of comprehensive income because Gill is a wholly owned subsidiary and its financial statements will be consolidated with Basaraba's. The gain is not relevant to the separate-entity statement of comprehensive income as it only reflects the performance of Basaraba on its own. The gain should also not be added to the value of the bonds payable on Basaraba's statement of financial position as the bond has been retired and there is no longer any bonds payable to report.

Gill Ltd Is the Wholly Owned Subsidiary of Basaraba Ltd