[Peter]

Hi all,

I’m having trouble fully understanding this intercompany bond transaction problem where the sub is only 75% owned by the parent. Parent issues bond to third party, sub buys bond from third party, extinguishing debt, resulting in gain.

I understand calculating the gain with the eliminating entry, but Becker says the full 100% of the gain is recognized in retained earnings and none in the noncontrolling interest. I’m not following why it’s not a 75/25 split between the R/E and NCI. Becker tells me that NCI is only adjusted if the bond was issued by the subsidiary, but because it was issued by the parent originally, there is no impact on NCI. Can someone help explain this a little better?

Thanks!

[Anonymous]

Don't know if this is any better-anything the parent does is 100% reflected on the FS, the full amount of sub income is also reflected in the consolidated FS, and then the NCI is disclosed separately (kind of netting the total sub info). Since the gain was for the parent, there is no reason you would disclose only 75% of it. I know exactly which MCQ you are talking about, and yes, I made the mistake of only taking 75% of it, but the explanation did make sense to me afterwards.

[Peter]

@anyatver That does make more sense after thinking it through now. Thank you! I think perhaps I was just exhausted last night and my brain would not let me understand anything more XD

Good luck on your next attempt at FAR!

[Anonymous]

Thank you! 2/12-two weeks from Monday!

[Author]

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