Exam 7: Intercompany Profit Transactions - Bonds

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. -Noncontrolling interest share for 2011 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. -What was the amount of gain or (loss)from the intercompany purchase of Plenty's bonds on January 2,2012?

Pongo Company has $2,000,000 of 6% bonds outstanding on December 31,2010 with unamortized premium of $60,000.These bonds pay interest semiannually on January 1 and July 1 and mature on January 1,2016.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 2,2011.There is only one issue of outstanding bonds of the affiliated companies and they have consolidated financial statements. For the year 2011,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 2011. 2.Controlling share of consolidated net income for Pongo Company and subsidiary for 2011.

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 amount of consolidated Interest Expense for 2012 was

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. -Bonds Payable appeared in the December 31,2011 consolidated balance sheet of Pfadt Corporation and Subsidiary in the amount of

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: -The gain from the bond purchase that appeared on the December 31,2010 consolidated income statement 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. -Using the original information,the balances for the Bonds Payable and Bond Interest Payable accounts,respectively,on the consolidated balance sheet for December 31,2013 were

Separate company and consolidated income statements for Pitta and Sojourn Corporations for the year ended December 31,2011 are summarized as follows: The interest income and expense eliminations relate to a $100,000,9% bond issue that was issued at par value and matures on January 1,2016.On January 2,2011,a portion of the bonds was purchased and constructively retired. Required: Answer the following questions. 1.Which company is the issuing affiliate of the bonds payable? 2.What is the gain or loss from the constructive retirement of the bonds payable that is reported on the consolidated income statement for 2011? 3.What portion of the bonds payable is held by nonaffiliates at December 31,2011? 4.Is Sojourn a wholly-owned subsidiary? If not,what percentage does Pitta own? 5.Does the purchasing affiliate use straight-line or effective interest amortization? 6.Explain the calculation of Pitta's $19,900 income from Sojourn.

Paleo Corporation holds 80% of the capital stock of Sockrite Company.On January 1,2011,Sockrite purchased $50,000 par value,10% bonds on the open market that had been issued by Paleo on January 1,2009.Sockrite paid $58,000 for these bonds which had originally been issued by Paleo for $53,000,with a 10-year maturity from the date of issue.Interest is paid annually on December 31.Straight-line amortization is used by both companies. Required: 1.Calculate the interest income reported by Sockrite related to these bonds in 2011. 2.Calculate the interest expense reported by Paleo related to these bonds in 2011. 3.Calculate the gain or loss on retirement of bonds payable to be reported on consolidated financial statements in 2011.

If an affiliate purchases bonds in the open market,the book value of the intercompany bond liability at the time of purchase is

Platts Incorporated purchased 80% of Scarab Company several years ago when the fair value equaled the book value.On January 1,2010,Scarab has $100,000 of 8% bonds that were issued at face value and have five years to maturity.Interest is paid annually on December 31.Both Platts and Scarab would use the straight-line method to amortize any premium or discount incurred in the issuance or purchase of bonds.On January 1,2011,Platts purchased all of Scarab's bonds for $96,000. Required: 1.Prepare the journal entries in 2011 that would be recorded by Platts and Scarab on their separate financial records. 2.Prepare the consolidating working paper entries required for the year ending December 31,2011.

Spott is a 75%-owned subsidiary of Penthal.On January 1,2010,Spott issued $900,000 of $1,000 face amount 8% bonds at par.The bonds have interest payments on January 1 and July 1 of each year and mature on January 1,2014.On July 2,2011,Penthal purchased all 900 bonds on the open market for $1,020 per bond.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 Spott's books. 2.Record the 2011 journal entries from July 1 to December 31 on Penthal's books. 3.Record the elimination entries for the consolidation working papers for the year ending December 31,2011.

Padma Corporation owns 70% of the outstanding stock of Somega Company.On January 1,2010,Somega issued $2,000,000 in 6% bonds that matured on January 1,2020.At the time of issuance,the bonds were sold at a premium of $250,000.At January 1,2011,Padma purchased half of the bonds for $910,000,and constructively retired the debt.Annual interest is paid on December 31.Straight-line amortization is used by both companies. Required: Complete the table below with respect to the account balances that Padma,Somega and the consolidated entity would report on their respective financial statements.

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. -With respect to the bond purchase,the consolidated income statement of Pfadt Corporation and Subsidiary for 2011 showed a gain or loss of

Pheasant Corporation owns 80% of Sal Corporation's outstanding common stock that was purchased at book value equal to fair value on January 1,2005. Additional information: 1.Pheasant sold inventory items that cost $3,000 to Sal during 2012 for $6,000.One-half of this merchandise was inventoried by Sal at year-end.At December 31,2012,Sal owed Pheasant $2,000 on account from the inventory sales.No other intercompany sales of inventory have occurred since Pheasant acquired its interest in Sal. 2.Pheasant sold equipment with a book value of $5,000 and a 5-year useful life to Sal for $10,000 on December 31,2010.The equipment remains in use by Sal and is depreciated by the straight-line method.The equipment has no salvage value. 3.On January 2,2012,Sal paid $10,800 for $10,000 par value of Pheasant's 10-year,10% bonds.These bonds were originally sold at par value,and have interest payment dates of January 1 and July 1,and mature on January 1,2016.Straight-line amortization has been applied by Sal to the Pheasant bond investment. 4.Pheasant uses the equity method in accounting for its investment in Sal. Required: Complete the working papers to consolidate the financial statements of Pheasant Corporation and Sal for the year ended December 31,2012.

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: -Consolidated Interest Expense and consolidated Interest Income,respectively,that appeared on the consolidated income statement for the year ended December 31,2010 was

Patama Holdings owns 70% of Seagull Corporation.On January 1,2011,Seagull acquires $1,000,000 of bonds originally issued by Patama on January 1,2006.The bonds were issued at a stated rate of 5% for 10 years,for $960,000.Seagull purchased them for $990,000.Assume that both Patama and Seagull will use the straight-line method for any bond-related amortization.Annual interest is paid on December 31. Required: Complete the table below with respect to the account balances that Patama,Seagull and the consolidated entity would report on their respective financial statements.

Phlora purchased its 100% ownership in Speshal many years ago at a time when book values of assets and liabilities equaled market values. On January 2,2012,Phlora purchased $200,000 of Speshal Corporation's 6% bonds for $182,000.At that time,this was all of the bonds that had been issued by Speshal,and unamortized premium on Speshal's books was $3,500.The bonds pay interest on July 1 and January 1 and mature on January 1,2017.Both Phlora and Speshal use straight-line amortization.Phlora uses the equity method of accounting for its investment in Speshal. Required: Prepare elimination/adjusting entries on the consolidating work papers for the year ended December 31,2012.

Peter Corporation owns a 70% interest in Sundown Corporation acquired several years ago at a price equal to book value and fair value.On December 31,2010,Sundown had $300,000 par of 6% bonds outstanding with an unamortized premium of $30,000.The bonds mature in five years and pay interest on January 1 and July 1.On January 2,2011,Peter acquired one-third of Sundown's bonds for $117,000.Peter and Sundown use straight-line amortization.Sundown reports net income of $250,000 for 2011.Peter uses the equity method to account for the investment. Required: 1.Calculate Peter's income from Sundown for 2011. 2.Calculate the noncontrolling interest share for 2011.