Interest on Loan

I’m confused! Why would the subsidiary be showing $25,000 accrued loan interest if the loan is a 10% loan with a value of $1,000,000? Where / what is the $600,000? Is that the value of the subsidiary’s loan stock held by the parent?

In general terms ( because the information you have given doesn’t make sense without further explanation ) the $600,000 investment held by the parent will be cancelled against £600,000 of the $1,000,000 issued by the subsidiary and the remeining uncancelled value of $400,000 will be shown in the consolidation as a long term liability ( unless it’s repayable within the next twelve months )

As for the interest unrecorded by the parent – whatever the figure IS which is unrecorded – should be recorded in the parent’s records as Dr Receivable loan interest and Cr Parent’s Retained Earnings.

Then cancel the loan interest receivable in the parent against the loan interest expense in the subsidiary and leave just the loan interest payable to the outside lenders. But DO NOT cancel the loan interest receivable adjustment as now included within the parent’s retained earnings – it’s the receivable which is being cancelled against the payable

I can only think that we acquired the subsidiary 9 months into the current year and that the 100,000 has therefore been time apportioned to reflect only the post acquisition loan interest payable. In the parent’s records ( if my assumption is correct ) will be to increase parent’s retained earnings by our share of that 25,000 ie 15,000 and increase receivables. Then cancel the receivable of 15,000 against 15,000 of the 25,0000 payable in the subsidiary’s balance sheet leaving just 10,000 as a current liability in the subsidiary representing the time apportioned interest payable to outside lenders

yes, cancel the 15,000 parent receivable against 15,000 of the 25,000 subsidiary payable