Question

On January 1, 2018, Riley Corp. acquired some of the outstanding bonds of one of its subsidiaries. The bonds had a carrying value of $421,620, and Riley paid $401,937 for them. How should you account for the difference between the carrying value and the purchase price in the consolidated financial statements for 2018?

Answer 1

Answer:

The gain on exthinguish will be       19,683

Explanation:

The bond had a carrying value of 421,620

They were purchase at                   401,937

The gain on exthinguish will be       19,683

That's because the bonds payable were purchase from third parties.

The subsidiary already issued the bond in a previous period.

When the parent company purchase the bonds, they were retired from other entities, so it is not a intra-entity transaction, therefore produces gains or losses.