Question

A parent company buys bonds on the open market that had been previously issued by its subsidiary. The price paid by the parent is less than the carrying amount of the bonds on the subsidiary’s records. How should the parent report the difference between the price paid and the carrying amount of the bonds on its consolidated financial statements?

Answer 1

Gain on retirement of bonds

Explanation:

A parent company bond the open market that had been issued by its subsidiary . The parent report the difference between the price paid and the carrying amount of the bond on its consolidated financial statement is as a gain on retirement of bond.

A gain on retirement of bonds occur when a bond issuer buys bonds less than the amount of the associated liability .The liability is the face value of the bond.

For example a company issued & 100,000 of a bond five years ago at premium of $5,000.The unauthorized balance is $4,000.Then amount of bond is $ 104,000. Repurchase price and amount $2000 recognize the retirement of bonds.