I purchased a business (100% stock) with a zero bearing interest promissory note, how do I enter this purchase in the consolidated company books?

ANSWER

Expert Charles Randall's Answer:

The parent company records the purchase of the stock of a subsidary as a debit to Investment in "abc" and a credit to note payable.  The IRS will not approve of 'zero interest promissory note', so such practice should be avoided.  Structure the note and the purchase price of the subsidary to come to the result that you wish backing out the interest from the agreed amount to be paid or charge interest according to the IRS rules and the applicable federal rate.(AFR).

Charles Randall, CPA

New York

39 yrs experience

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