Search Company Is a 90% Owned Subsidiary of Passage Company

question 36

Multiple Choice

Search Company is a 90% owned subsidiary of Passage Company.On January 1, 2013, Search Company purchased for $680,000 bonds of Passage Company that had a carrying value of $725,000 (par value $700,000) .The bonds mature on December 31, 2014.Both companies use the straight-line method of amortization and have a December 31 year-end.The increase in 2013 consolidated income (i.e., income before subtracting noncontrolling interest) is

• A)$45,000.
• B)$44,000.
• C)$54,000.
• D)$36,000.
• E)$46,000.

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Definitions:

Earnings

The amount by which revenues exceed expenses.

Outstanding Shares

The aggregate amount of a company's shares that have been distributed and are owned by investors.

Stockholders' Equity

Represents the equity stake currently held on a company’s balance sheet by its shareholders, calculated as the company's total assets minus its total liabilities.

Authorized Shares

The maximum number of shares that a corporation is legally permitted to issue, as specified in its articles of incorporation.