Question

P Corporation acquires all of S Company's voting stock. At the date of acquisition, the fair value of S Company's long-term debt is $100 greater than its book value. The debt has a 5-year remaining life at the date of acquisition. When consolidating S Company's financial statements for the first year following acquisition, how will eliminating entry (O) affect long-term debt and interest expense

Answer 1

Answer:

$20 debit to long-term debt, $20 credit to interest expense

Explanation:

Based on the information given the eliminating entry that will affect the long-term debt and interest expense is to DEBIT LONG-TERM DEBT with the amount of $20 and CREDIT INTEREST EXPENSE with the amount of $20

Debit long-term debt $20

Credit Interest expense $20

Calculated as:

Fair value of S Company's long-term debt/Remaining life at the date of acquisition

=$100/5years

=$20