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Exam 18: Intercompany Bond Holdings

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Exam 1: Setting the Stage40 Questionsadd course
Exam 2: Intercorporate Equity Investments: an Introduction42 Questionsadd course
Exam 3: Business Combinations40 Questionsadd course
Exam 4: Wholly-Owned Subsidiaries: Reporting Subsequent to Acquisition37 Questionsadd course
Exam 5: Consolidation of Non-Wholly Owned Subsidiaries36 Questionsadd course
Exam 6: Subsequent-Year Consolidations: General Approach36 Questionsadd course
Exam 7: Segmented and Interim Reporting41 Questionsadd course
Exam 8: Foreign Currency Transactions and Hedges49 Questionsadd course
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Exam 10: Financial Reporting for Not-For-Profit Organizations46 Questionsadd course
Exam 11: Public Sector Financial Reporting41 Questionsadd course
Exam 12: Income Tax Allocation4 Questionsadd course
Exam 13: Income Tax Allocation Subsequent to Acquisition4 Questionsadd course
Exam 14: Good will Impairment Test6 Questionsadd course
Exam 15: Step Purchases6 Questionsadd course
Exam 16: Decreases in Ownership Interest4 Questionsadd course
Exam 17: Preferred and Restricted Shares of Investee Corporation5 Questionsadd course
Exam 18: Intercompany Bond Holdings6 Questionsadd course
Exam 19: Fund Accounting5 Questionsadd course
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Soft Limited owns 70% of the shares of Hard Co.On January 1,20X5,Hard Co.issued $1,000,000 bonds payable at 6%,due in December 31,20X10.The bonds were issued for $907,542,representing a yield of 8%.The interest is paid annually on December 31.On January 1,20X6,Soft purchased $300,000 face value of the Hard bonds for $287,700 when the bonds were yielding 7%. Required: Both companies use the effective interest rate to amortize the bonds.Prepare the journal eliminating journal entries relating to the bonds as they would appear on the consolidated worksheet.The agency method is used.Calculate the consolidated bonds payable account at December 31,20X6,assuming there are no other bonds outstanding.

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Determine bonds payable balance on Hard's books at January 1,20X6 and December 31,20X6,using the effective interest rate method.
Determine bonds payable balance on Hard's books at January 1,20X6 and December 31,20X6,using the effective interest rate method. Balance at January 1,20X6 of $300,000 face value bonds is: 300/1,000 × $920,145 = $276,044 Balance at December 31,20X6 of $300,000 face value bonds is: 300/1000 × $933,757 = $280,127 Interest expense on $300,000 face value bonds in 20X6 300/1000 × $73,612= $22,083 Balance remaining for the $700,000 face value bonds: 700/1000 × 933,757 = $653,630 Bonds receivable balance on Soft's books,using the effective interest rate method to amortize: 20X6: Gain on redemption of bonds at time of purchase by Soft: Balance in the bonds payable would be: Balance at January 1,20X6 of $300,000 face value bonds is:
300/1,000 × $920,145 = $276,044
Balance at December 31,20X6 of $300,000 face value bonds is:
300/1000 × $933,757 = $280,127
Interest expense on $300,000 face value bonds in 20X6
300/1000 × $73,612= $22,083
Balance remaining for the $700,000 face value bonds:
700/1000 × 933,757 = $653,630
Bonds receivable balance on Soft's books,using the effective interest rate method to amortize:
Determine bonds payable balance on Hard's books at January 1,20X6 and December 31,20X6,using the effective interest rate method. Balance at January 1,20X6 of $300,000 face value bonds is: 300/1,000 × $920,145 = $276,044 Balance at December 31,20X6 of $300,000 face value bonds is: 300/1000 × $933,757 = $280,127 Interest expense on $300,000 face value bonds in 20X6 300/1000 × $73,612= $22,083 Balance remaining for the $700,000 face value bonds: 700/1000 × 933,757 = $653,630 Bonds receivable balance on Soft's books,using the effective interest rate method to amortize: 20X6: Gain on redemption of bonds at time of purchase by Soft: Balance in the bonds payable would be: 20X6: Gain on redemption of bonds at time of purchase by Soft: Determine bonds payable balance on Hard's books at January 1,20X6 and December 31,20X6,using the effective interest rate method. Balance at January 1,20X6 of $300,000 face value bonds is: 300/1,000 × $920,145 = $276,044 Balance at December 31,20X6 of $300,000 face value bonds is: 300/1000 × $933,757 = $280,127 Interest expense on $300,000 face value bonds in 20X6 300/1000 × $73,612= $22,083 Balance remaining for the $700,000 face value bonds: 700/1000 × 933,757 = $653,630 Bonds receivable balance on Soft's books,using the effective interest rate method to amortize: 20X6: Gain on redemption of bonds at time of purchase by Soft: Balance in the bonds payable would be: Determine bonds payable balance on Hard's books at January 1,20X6 and December 31,20X6,using the effective interest rate method. Balance at January 1,20X6 of $300,000 face value bonds is: 300/1,000 × $920,145 = $276,044 Balance at December 31,20X6 of $300,000 face value bonds is: 300/1000 × $933,757 = $280,127 Interest expense on $300,000 face value bonds in 20X6 300/1000 × $73,612= $22,083 Balance remaining for the $700,000 face value bonds: 700/1000 × 933,757 = $653,630 Bonds receivable balance on Soft's books,using the effective interest rate method to amortize: 20X6: Gain on redemption of bonds at time of purchase by Soft: Balance in the bonds payable would be: Balance in the bonds payable would be: Determine bonds payable balance on Hard's books at January 1,20X6 and December 31,20X6,using the effective interest rate method. Balance at January 1,20X6 of $300,000 face value bonds is: 300/1,000 × $920,145 = $276,044 Balance at December 31,20X6 of $300,000 face value bonds is: 300/1000 × $933,757 = $280,127 Interest expense on $300,000 face value bonds in 20X6 300/1000 × $73,612= $22,083 Balance remaining for the $700,000 face value bonds: 700/1000 × 933,757 = $653,630 Bonds receivable balance on Soft's books,using the effective interest rate method to amortize: 20X6: Gain on redemption of bonds at time of purchase by Soft: Balance in the bonds payable would be:

Basaraba Ltd.owns 75% of the outstanding common shares of Gill Ltd.Gill purchased all of Basaraba's outstanding bond issue on the open market at a discount.The bonds have an unamortized premium attached.This transaction,in effect,retires the bond and results in a gain.Under the par-value approach to dealing with a gain on elimination of intercompany bond holdings,which of the following statements is true?

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C

A subsidiary has purchased some bonds from its parent company.Under the par-value method,the non-controlling interest is allocated its share of the difference between ________.

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B

Gill Ltd.is the wholly-owned subsidiary of Basaraba Ltd.Gill purchased all of Basaraba's outstanding bond issue on the open market at a discount.The bonds have an unamortized premium attached.This transaction,in effect,retires the bond and results in a gain.How should the gain be shown?

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Question 4

For gains on intercompany bond holdings,which method of allocating the gain emphasizes substance over form?

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Question 5

Basaraba Ltd.owns 75% of the outstanding common shares of Gill Ltd.Gill purchased all of Basaraba's outstanding bond issue on the open market at a discount.The bonds have an unamortized premium attached.This transaction,in effect,retires the bond and results in a gain.Under the par-value approach to dealing with a gain on elimination of intercompany bond holdings,which of the following statements is true?

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Question 6
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