On January 1, 20X4, Passive Heating Corporation paid $104,000 for $100,000 par value 9 percent bonds of Solar Energy Corporation. Solar had issued $300,000 of the 10-year bonds on January 1, 20X2, for $360,000. Passive previously had purchased 80 percent of the common stock of Solar on January 1, 20X1, at underlying book value.
Passive reported operating income (excluding income from subsidiary) of $50,000, and Solar reported net income of $30,000 for 20X4.
Required
Select the correct answer for each of the following questions.
1. What amount of interest expense should be included in the 20X4 consolidated income statement?
a. $14,000.
b. $18,000.
c. $21,000.
d. $27,000.
2. What amount of gain or loss on bond retirement should be included in the 20X4 consolidated income statement?
a. $4,000 gain.
b. $4,000 loss.
c. $12,000 gain.
d. $16,000 loss.
3. Income assigned to the noncontrolling interest in the 20X4 consolidated income statement should be
a. $6,000.
b. $8,100.
c. $8,400.
d. $16,000.
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