Sun Company Is a 100%-Owned Subsidiary of Peter Company

question 33

Multiple Choice

Sun Company is a 100%-owned subsidiary of Peter Company. On January 1, 20X1, Sun Company has $500,000 of 8% face rate bonds outstanding, with an unamortized discount of $5,000 that is being amortized over a 5 year remaining life to maturity. On that date, Peter Company purchased the bonds for $497,000. The adjustment to the consolidated income of the two companies needed in the consolidation process for 20X2 (the following year) is ____.

• A)$2,800 increase
• B)$400 decrease
• C)$400 increase
• D)$2,800 decrease

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Definitions:

Annual Percentage Rate

APR, a measure that reflects the cost of borrowing on an annual basis, incorporating not just the interest rate but also any fees and other charges involved.

Quoted Loan Rates

The interest rates that lenders provide to potential borrowers when quoting the costs of a loan.

APR

Annual Percentage Rate, a measure used to compare the annual cost of borrowing or the annual yield from an investment, including interest and fees.