At the end of the year, a parent acquires a wholly owned subsidiary’s bonds from unaffiliated parties at a cost less than the subsidiary’s carrying value. The consolidated net income for the year of acquisition should include the parent’s separate operating income plus:

-the subsidiary’s net income increased by the gain on constructive retirement of debt.

-the subsidiary’s net income decreased by the loss on constructive retirement of debt.

-the subsidiary’s net income increased by the gain on constructive retirement of debt, and decreased by the subsidiary’s bond interest expense.

-the subsidiary’s net income decreased by the loss on constructive retirement of debt, and decreased by the subsidiary’s bond interest expense.

 

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Note: This is a Kaplan CPA Review Question)

An investor uses the equity method to account for its 30% investment in common stock of an investee. Amortization of the investor’s share of the excess of fair value over book value of depreciable assets should be reported in the investor’s income statement as part of

-Amortization of goodwill.

-Other expense.

-Depreciation expense.

-Income from investee.

 

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