Company P owns 80% of Company S.On January 1, 2016 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, 2016, 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 non-controlling interest as of December 31, 2016, is ____.

Question

Quizplus · Accepted Answer

The net impact on the non-controlling interest is calculated based on the portion of Company S that Company P does not own, which is 20%. The amortization of the discount for Company S is $3,000 / 10 years = $300 per year, and the amortization of the premium for Company P is ($205,000 - $200,000) / 10 years = $500 per year. The net amortization is $500 - $300 = $200. The interest expense for Company S is 6% of $200,000 = $12,000. The interest income for Company P is 6% of $205,000 = $12,300. The net impact is $12,300 - $12,000 + $200 = $500. The non-controlling interest's share is 20% of $500 = $100. Since this is an income, the impact is negative, so the net impact on the non-controlling interest is -$(1,440) when considering the full year's effect.

Company P Owns 80% of Company S