Discuss in details how a parent can effectively retire a subsidiary bond and the supporting accounting entries.
A parent can effectively retire subsidiary bond by:
either, lending money to subsidiary and enabling it to purchase bonds from existing owners,or
by buying the bonds from existing owners herself (Parent Co.).
In latter the bonds shall cease to exist from consolidated viewpoint only, and would be reflecting as elimination from consolidated worksheet. Any resultant difference, due to elimination, between amortized cost and price paid would create an extraordinary item of gain/loss on such retirement. This item shall continue to remain in subsequent periods as retained earnings gets adjusted for the remaining retirement gain/loss that was not already amortized.
Any intercompany interest expense/revenue and accrued interest receivable/payable will be eliminated.
Journal Entries:
for former will be:
Loan to Subsidairy (Debit)
Bank (Credit)
for latter:
|
Bonds Payable Discount on Bonds Investment in Subsidiary Bonds |
Debit |
Credit Credit |
|
Interest Income Interest Expense |
Debit |
Credit |
Discuss in details how a parent can effectively retire a subsidiary bond and the supporting accounting...
DISCUSS IN DETAILS HOW A PARENT CAN EFFECTIVELY RETIRE A SUBSIDIARY BOND AND THE SUPPORTING ACCOUNTING ENTRIES
Scenario Many parent companies are sometimes faced with situations where they are forced to retire subsidiaries bonds. Required: Discuss in detail how a parent can effectively retire a subsidiary bond and the supporting accounting entries. (Feel free to use examples if necessary)
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