Question

On January 1, 2018, Jay Company acquired all the outstanding ownership shares of Zee Company. In assessing, Zee's acquisition-date fair values, Jay concluded that the carrying value of Zee's long-term debt (8-year remaining life) was less than its fair value by $20,000. At December 31, 2018, Zee Company's accounts show interest expense of $12,000 and long-term debt of $250,000. What amounts of interest expense and long-term debt should appear on the December 31, 2018, consolidated financial statements of Jay and its subsidiary Zee?Interest Expense Long-term debta. $14,500 $270,000b. $14,500 $267,500c. $9,500 $270,000d. $9,500 $267,500

Answer 1

interest expense n the consolidaded statment: 14,500

Step-by-step explanation:

The interest expense will be affected by the discount or premium recognize by Jay on Zee's long-term debt

As the value has been decreased by 20,000 There is a discount which, increases the interest expense

This will be amortizate under striagh-line method

20,000/8 = 2,500

The interest expense will be 12,000 cash proceds plus the amortization of 2,500.

12,000 + 2,500 = 14,500