Pongo Company has $2,000,000 of 6% bonds outstanding on December 31, 2013 with unamortized premium of $60,000. These bonds pay interest semiannually on January 1 and July 1 and mature on January 1, 2019. Straight-line amortization is used. Syring Inc.,
90%-owned subsidiary of Pongo, buys $1,000,000 par value of Pongo's outstanding bonds in the market for $980,000 on January 2, 2014. There is only one issue of outstanding bonds of the affiliated companies and they have consolidated financial statements.
For the year 2014, Pongo has income from its separate operations (excluding investment income) of $3,000,000 and Syring reports net income of $200,000. Pongo uses the equity method to account for the investment.
Required:
Determine the following:
1. Noncontrolling interest share for 2014.
2. Controlling share of consolidated net income for Pongo Company and subsidiary for 2014.
What will be an ideal response?
Requirement 1
Noncontrolling interest share
($200,000 × 10%) $20,000
Requirement 2
Controlling interest share of consolidated net income:
Income from Pongo's operations $3,000,000
Income from Syring:
Pongo's share of Syring income = 90% ×
$200,000 $180,000
Add: Constructive gain on bond
retirement ($2,000,000 + $60,000) × 50% -
980,000 50,000
Less: Piecemeal recognition of gain =
$50,000/5 years (10,000)
220,000
Controlling interest share $3,220,000
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