Search Company is a 90% owned subsidiary of Passage Company. On January 1, 2016, 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, 2017. Both companies use the straight-line method of amortization and have a December 31 year-end. The increase in 2016 consolidated income (i.e., income before subtracting noncontrolling interest) is:

Question

Quizplus · Accepted Answer

The gain on the bond retirement is the difference between the carrying value of the bonds ($725,000) and the purchase price ($680,000), which is $45,000. This gain increases the consolidated income.

Search Company Is a 90% Owned Subsidiary of Passage Company