Exam 7: Intercompany Profit Transactions - Bonds

Popcorn Corporation owns 90% of the outstanding voting common stock of Salty Corporation.On January 1,2005,Salty issued $1,000,000 face amount of 12%,$1,000 bonds payable at 119.20.The bonds pay interest on January 1 and July 1 of each year and mature on January 1,2013.On July 2,2010,Popcorn purchased all of the outstanding bonds at a price of 107.50.Both companies use straight-line amortization. Required: 1.Prepare the journal entries for July 1,2010 through December 31,2010 for Popcorn Corporation. 2..Prepare the journal entries for July 1,2010 through December 31,2010 for Salty Corporation. 3.Prepare the elimination entries necessary on the consolidating working papers for the year ended December 31,2010.

Bonds issued by a company remain on their books as a liability,but are considered constructively retired when

Use the following information to answer the question(s)below. Plenty Corporation issued six thousand,$1,000 par,6% bonds on January 1,2010,at par.Interest is paid on January 1 and July 1 of each year;the bonds mature on January 1,2015.On January 2,2012,Scrawn Corporation,a 75%-owned subsidiary of Plenty,purchased 3,000 of the bonds on the open market at 102.50.Plenty's separate net income for 2012 included the annual interest expense for all 3,000 bonds.Scrawn's separate net income for 2012 was $400,000,which included the bond interest received on July 1 as well as the accrual of bond interest revenue earned on December 31.Both companies use straight-line amortization of bond discounts/premiums. -Using the original information,the elimination entries on the consolidation working papers prepared on December 31,2012 included at least

Use the following information to answer the question(s)below. Plenty Corporation issued six thousand,$1,000 par,6% bonds on January 1,2010,at par.Interest is paid on January 1 and July 1 of each year;the bonds mature on January 1,2015.On January 2,2012,Scrawn Corporation,a 75%-owned subsidiary of Plenty,purchased 3,000 of the bonds on the open market at 102.50.Plenty's separate net income for 2012 included the annual interest expense for all 3,000 bonds.Scrawn's separate net income for 2012 was $400,000,which included the bond interest received on July 1 as well as the accrual of bond interest revenue earned on December 31.Both companies use straight-line amortization of bond discounts/premiums. -If the bonds were originally issued at 103,and 70% of them were purchased on January 2,2014 at 104,the constructive gain or (loss)on the purchase was

Use the following information to answer the question(s)below. Plenty Corporation issued six thousand,$1,000 par,6% bonds on January 1,2010,at par.Interest is paid on January 1 and July 1 of each year;the bonds mature on January 1,2015.On January 2,2012,Scrawn Corporation,a 75%-owned subsidiary of Plenty,purchased 3,000 of the bonds on the open market at 102.50.Plenty's separate net income for 2012 included the annual interest expense for all 3,000 bonds.Scrawn's separate net income for 2012 was $400,000,which included the bond interest received on July 1 as well as the accrual of bond interest revenue earned on December 31.Both companies use straight-line amortization of bond discounts/premiums. -If the bonds were originally issued at 106,and 80% of them were purchased by Scrawn on January 2,2013 at 98,the gain or (loss)from the intercompany purchase was

Pachelor Corporation owns 70% of the outstanding stock of Stabb Company.On January 1,2010,Stabb issued $1,000,000 in 7% bonds that matured on January 1,2015.At the time of issuance,the bonds were sold at a discount of $125,000.At January 2,2012,Pachelor purchased the bonds for $1,400,000,and constructively retired the debt.Interest is paid annually on January 1.Straight-line amortization is used by both companies. Required: 1.Calculate the gain or loss that the consolidated entity incurred to retire the debt. 2.Prepare eliminating/adjusting entries for the consolidating work papers for the year ended December 31,2012.

Use the following information to answer the question(s)below. Plenty Corporation issued six thousand,$1,000 par,6% bonds on January 1,2010,at par.Interest is paid on January 1 and July 1 of each year;the bonds mature on January 1,2015.On January 2,2012,Scrawn Corporation,a 75%-owned subsidiary of Plenty,purchased 3,000 of the bonds on the open market at 102.50.Plenty's separate net income for 2012 included the annual interest expense for all 3,000 bonds.Scrawn's separate net income for 2012 was $400,000,which included the bond interest received on July 1 as well as the accrual of bond interest revenue earned on December 31.Both companies use straight-line amortization of bond discounts/premiums. -Pickle Incorporated acquired a $10,000 bond originally issued by its 80%-owned subsidiary on January 2,2011.The bond was issued in a prior year for $11,250,matures January 1,2016,and pays 9% interest at December 31.The bond's book value at January 2,2011 is $10,625,and Pickle paid $9,500 to purchase it.Straight-line amortization is used by both companies.How much interest income should be eliminated in 2011?

If the price paid by a parent company to acquire the debt of a subsidiary is greater than the book value of the liability,a ________ occurs.

Parkview Holdings owns 70% of Skyline Corporation.On January 1,2011,Skyline acquires half of the $2,000,000 of bonds originally issued by Parkview on January 1,2006.The bonds were issued at a stated rate of 5% for 10 years,for $1,920,000.Skyline purchased them for $950,000.Assume that both Parkview and Skyline will use the straight-line method for any bond-related amortization.Annual interest is paid on December 31. Required: Prepare the entries required for the consolidating worksheet for the years ended December 31,2006 through December 31,2016.

Use the following information to answer the question(s)below. Plenty Corporation issued six thousand,$1,000 par,6% bonds on January 1,2010,at par.Interest is paid on January 1 and July 1 of each year;the bonds mature on January 1,2015.On January 2,2012,Scrawn Corporation,a 75%-owned subsidiary of Plenty,purchased 3,000 of the bonds on the open market at 102.50.Plenty's separate net income for 2012 included the annual interest expense for all 3,000 bonds.Scrawn's separate net income for 2012 was $400,000,which included the bond interest received on July 1 as well as the accrual of bond interest revenue earned on December 31.Both companies use straight-line amortization of bond discounts/premiums. -There are several theories for allocating constructive gains or losses between purchasing and issuing affiliates.The Agency Theory

Phauna paid $120,000 for its 80% interest in Schrub on January 1,2009 when Schrub had $150,000 of total stockholders' equity. On January 1,2012,Phauna purchased $50,000 of Schrub Corporation's 8% bonds for $48,000.At that time,$100,000 of bonds had been issued by Schrub,and unamortized premium was $2,000.The bonds pay interest on June 30 and December 31 and mature on December 31,2016.Both Phauna and Schrub use straight-line amortization.Phauna uses the equity method of accounting for its investment in Schrub. Required: Prepare eliminating/adjusting entries for the bonds on the consolidating work papers for the year ended December 31,2012.

Pare Corporation owns 65% of the outstanding voting stock of Summer Corporation.On January 1,2011,Pare purchased $4,000,000 of bonds that were originally issued by Summer several years earlier.The ten-year bonds have a 5% interest rate,and pay interest each December 31. The bonds were originally issued at a discount of $206,080,but at January 1,2011,they have a book value of $3,896,960.Pare paid $4,067,935 for the bonds and will amortize the premium over the next five years when the bonds mature.Both companies use the straight-method of amortization. Required: 1.Calculate the interest expense for 2011 that will be recorded by Summer. 2.Calculate the interest income for 2011 that will be recorded by Pare. 3.Calculate the Gain/Loss on retirement of bonds payable that will be reported on the consolidated financial statements for the year ending December 31,2011.

Use the following information to answer the question(s)below. Pfadt Inc.had $600,000 par of 8% bonds payable outstanding on January 1,2011 due January 1,2015 with an unamortized discount of $12,000.Senat is a 90%-owned subsidiary of Pfadt.On January 2,2011,Senat Corporation purchased $150,000 par value of Pfadt's outstanding bonds for $152,000.The bonds have interest payment dates of January 1 and July 1.Straight-line amortization is used. -Bond Interest Receivable for 2011 of Pfadt's bonds on Senat's books was

Use the following information to answer the question(s)below. Poe Corporation owns an 80% interest in Seri Company acquired at book value several years ago.On January 2,2011,Seri purchased $100,000 par of Poe's outstanding 10% bonds for $103,000.The bonds were issued at par and mature on January 1,2014.Straight-line amortization is used.Separate incomes of Poe and Seri for 2011 are $350,000 and $120,000,respectively.Poe uses the equity method to account for the investment in Seri. -Controlling interest share of consolidated net income for 2011 was

Paka Corporation owns an 80% interest in Sandra Company.Paka acquired Sandra's bonds on January 2,2011.The following information is from the adjusted trial balances at December 31,2011,at which time the bonds have three years to maturity.The bonds have interest payment dates of January 1 and July 1.Straight-line amortization is used by both companies. Required: Prepare the necessary consolidation working paper entries on December 31,2011 with respect to the intercompany bonds.

Snackle Inc.is a 90%-owned subsidiary of Pasha Corp.On January 1,2010,Snackle issued $400,000 of $1,000 face amount 8% bonds at $964 per bond.Interest is paid on January 1 and July 1 of each year and covers the preceding six months.On July 2,2011,Pasha purchased all 400 bonds on the open market for $1,030 per bond.The bonds mature on December 31,2012.Both companies use straight-line amortization. Required: With respect to the bonds,use General Journal format to: 1.Record the 2011 journal entries from July 1 to December 31 on Pasha's books. 2.Record the 2011 journal entries from July 1 to December 31 on Snackle's books. 3.Record the elimination entries for the consolidation working papers for the year ending December 31,2011.

Use the following information to answer the question(s)below. Pascalian Company owns a 90% interest in Sapp Company.On January 1,2010,Pascalian had $300,000,6% bonds outstanding with an unamortized premium of $9,000.The bonds mature on December 31,2014.Sapp acquired one-third of Pascalian's bonds in the open market for $97,000 on January 1,2010.Both companies use straight-line amortization of bond discounts/premiums.Interest is paid on December 31.On December 31,2010,the books of the two affiliates held the following balances: -Prussia Corporation owns 80% the voting stock of Stad Corporation.On January 1,2010,Prussia paid $391,000 cash for $400,000 par of Stad's 10% $1,000,000 par value outstanding bonds,due on April 1,2015.Stad's bonds had a book value of $1,045,000 on January 1,2010.Straight-line amortization is used.The gain or loss on the constructive retirement of $400,000 of Stad bonds on January 1,2010 was reported in the 2010 consolidated income statement in the amount of

Sabu is a 65%-owned subsidiary of Peerless.On January 1,2010,Sabu issued $1,000,000 of $1,000 face amount 8% bonds at $980 per bond.The bonds have interest payments on December 31 of each year and mature on January 1,2015.On January 1,2011,Peerless purchased all 1,000 bonds on the open market for $1,010 per bond.Straight-line amortization is used by both companies. Required: With respect to the bonds,use General Journal format to: 1.Record the journal entries on Sabu's books made from 2010 to 2015. 2.Record the journal entries on Peerless' books made from 2010 to 2015. 3.Record the elimination entries for the consolidation working papers for 2010 through 2015.

Pass Corporation owns 80% of Sindy Company,purchased at the underlying book value on January 1,2010.On January 1,2010,Pass also purchased $200,000 par value 6% bonds that had been issued by Sindy on January 1,2007 with a ten-year maturity(due January 1,2017).Annual interest is paid on December 31.Straight-line amortization is used by both companies. At year-end 2010,the following entry was made on the consolidating worksheet. Required: 1.How much did Pass pay for the bonds? 2.What is the book value of the bonds on the date of purchase? 3.What amount of interest income and interest expense must be eliminated in the entry above designated as (a)and (b)?

Use the following information to answer the question(s)below. Plenty Corporation issued six thousand,$1,000 par,6% bonds on January 1,2010,at par.Interest is paid on January 1 and July 1 of each year;the bonds mature on January 1,2015.On January 2,2012,Scrawn Corporation,a 75%-owned subsidiary of Plenty,purchased 3,000 of the bonds on the open market at 102.50.Plenty's separate net income for 2012 included the annual interest expense for all 3,000 bonds.Scrawn's separate net income for 2012 was $400,000,which included the bond interest received on July 1 as well as the accrual of bond interest revenue earned on December 31.Both companies use straight-line amortization of bond discounts/premiums. -No constructive gain or loss arises from the purchase of an affiliate's bonds if the