If a Parent Company Borrows Money at an Interest Rate

question 24

Multiple Choice

If a parent company borrows money at an interest rate of six percent from its subsidiary, what effect (if any) will this have on the non-controlling interest?

• A) This would have no effect on the non-controlling interest.
• B) The subsidiary would book its pro-rata share of any interest revenue.
• C) The non-controlling interest balance would be reduced by the amount of the loan.
• D) The subsidiary would record any interest revenue as an extraordinary gain.

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Definitions:

Double-Declining-Balance

A method of accelerated depreciation where an asset loses value at double the rate of its straight-line depreciation.

Units-Of-Activity

A method for allocating depreciation based on the actual usage, work, or units of production of the asset, rather than passage of time.

Residual Value

The approximate worth of an asset when it reaches the end of its usable life.

Depreciable Cost

This refers to the total cost of an asset that is subject to depreciation over its useful life, including the purchase price and any additional costs necessary to make the asset usable.