On January 1, 2018, Jay Company acquired all the outstanding ownership shares of Zee Company. In assessing Zee's acquisition-date fair values, Jay concluded that the carrying value of Zee's long-term debt (8-year remaining life) was less than its fair value by $20,000. At December 31, 2018, Zee Company's accounts show interest expense of $12,000 and long-term debt of $250,000. What amounts of interest expense and long-term debt should appear on the December 31, 2018, consolidated financial statements of Jay and its subsidiary Zee?

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Business

Dominic Fox

31 July, 07:23

On January 1, 2018, Jay Company acquired all the outstanding ownership shares of Zee Company. In assessing Zee's acquisition-date fair values, Jay concluded that the carrying value of Zee's long-term debt (8-year remaining life) was less than its fair value by $20,000. At December 31, 2018, Zee Company's accounts show interest expense of $12,000 and long-term debt of $250,000. What amounts of interest expense and long-term debt should appear on the December 31, 2018, consolidated financial statements of Jay and its subsidiary Zee?

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Maddox Herring · Answer 1

consolidated income statemnt interest expense: 14,500

net long-term debt consolidaded: 232,500

Explanation:

Jay thinks the long-term debt carries a discount.

Which makes the fair value 20,000 less, thus increasing hte interest expense.

amortization on discount: 20,000 / 8 = 2,500

interest expense in the consolidated statement:

12,000 + 2,500 = 14,500

adjusted balance ofthe discount: 20,00 - 2,500 = 17,500

long term debt: 250,000

discount on debt 17,500

net 232,500