Question

On december 31, 2008, Pico acquired $ 250,000 per value of the outstanding $1,000,000 bonds of its subsidiary, sico, in the market for $ 200,000, on the date, Sico had a $ 100,000 discount on its total liability. Which one of the following is the net amount of gain or loss that will be recognized by pico in its December 31, 2008, consolidated financial statements as a result of its intercompany bonds?

a. $150,000
b. $ 50,000
c. $25,000
d. $75,000

Answer 1

Pico gain = $25,000

Step-by-step explanation:

Given:

Total bonds of sico = $1,000,000

Pico acquired = $250,000

Total amount of premium = $200,000

Discount amount = $100,000

Find:

Pico gain or loss

Computation:

Share of Pico = $250,000 / $1,000,000

Share of Pico = 0.25

Gain in premium = $200,000 × 0.25

Gain in premium = $50,000

Loss in discount = $100,000 × 0.25

Loss in discount = $25,000

Net gain = $50,000 - $25,000

Net gain = $25,000