Pancake Corporation owns 85 percent of Syrup Corporation's voting shares.On January 1,20X8,Pancake Corporation sold $200,000 par value 8 percent bonds to Syrup when the market interest rate was 5 percent.The bonds mature in 10 years and pay interest semiannually on June 30 and Dec 31.
-Based on the information given above,in the preparation of the 20X8 consolidated financial statements,interest income will be:

Question

Quizplus · Accepted Answer

BIn the preparation of consolidated financial statements, intercompany transactions, such as the interest income and expense between Pancake Corporation and Syrup Corporation, are eliminated. Therefore, neither interest income nor expense from this bond transaction would be recognized in the consolidated financial statements. Choices A and B both suggest adjustments for interest income, but in the context of consolidation, these transactions are eliminated to avoid overstating revenues or expenses. The correct approach involves eliminating the interest income and expense that arises from transactions between the parent and subsidiary to accurately reflect the economic reality of the consolidated entity.

Pancake Corporation Owns 85 Percent of Syrup Corporation's Voting Shares