Exam 7: Intercompany Profit Transactions - Bonds

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 31,2013,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 2,2014,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 2014.Peter uses the equity method to account for the investment. Required: 1.Calculate Peter's income from Sundown for 2014. 2.Calculate the noncontrolling interest share for 2014.

Use the following information to answer the question(s)below. Pfadt Inc.had $600,000 par of 8% bonds payable outstanding on January 1,2013 due January 1,2017 with an unamortized discount of $12,000.Senat is a 90%-owned subsidiary of Pfadt.On January 2,2013,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 2013 of Pfadt's bonds on Senat's books was

Use the following information to answer the question(s)below. Pfadt Inc.had $600,000 par of 8% bonds payable outstanding on January 1,2013 due January 1,2017 with an unamortized discount of $12,000.Senat is a 90%-owned subsidiary of Pfadt.On January 2,2013,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 2013 showed a gain or loss of

Paka Corporation owns an 80% interest in Sandra Company.Paka acquired Sandra's bonds on January 2,2014.The following information is from the adjusted trial balances at December 31,2014,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 31,2014 with respect to the intercompany bonds.

Phauna paid $120,000 for its 80% interest in Schrub on January 1,2011 when Schrub had $150,000 of total stockholders' equity. On January 1,2014,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 31,2018.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 31,2014.

Using the original information,the elimination entries on the consolidation working papers prepared on December 31,2014 included at least

Patama Holdings owns 70% of Seagull Corporation.On January 1,2013,Seagull acquires $1,000,000 of bonds originally issued by Patama on January 1,2008.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.

Use the following information to answer the question(s)below. Pascalian Company owns a 90% interest in Sapp Company.On January 1,2013,Pascalian had $300,000,6% bonds outstanding with an unamortized premium of $9,000.The bonds mature on December 31,2017.Sapp acquired one-third of Pascalian's bonds in the open market for $97,000 on January 1,2013.Both companies use straight-line amortization of bond discounts/premiums.Interest is paid on December 31.On December 31,2013,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 31,2013 was

Pheasant Corporation owns 80% of Sal Corporation's outstanding common stock that was purchased at book value equal to fair value on January 1,2007. Additional information: 1.Pheasant sold inventory items that cost $3,000 to Sal during 2014 for $6,000.One-half of this merchandise was inventoried by Sal at year-end.At December 31,2014,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 31,2012.The equipment remains in use by Sal and is depreciated by the straight-line method.The equipment has no salvage value. 3.On January 2,2014,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 1,2018.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 31,2014.

Use the following information to answer the question(s)below. Pascalian Company owns a 90% interest in Sapp Company.On January 1,2013,Pascalian had $300,000,6% bonds outstanding with an unamortized premium of $9,000.The bonds mature on December 31,2017.Sapp acquired one-third of Pascalian's bonds in the open market for $97,000 on January 1,2013.Both companies use straight-line amortization of bond discounts/premiums.Interest is paid on December 31.On December 31,2013,the books of the two affiliates held the following balances: -The gain from the bond purchase that appeared on the December 31,2013 consolidated income statement was

If the bonds were originally issued at 103,and 70% of them were purchased on January 2,2016 at 104,the constructive gain or (loss)on the purchase was

Popcorn Corporation owns 90% of the outstanding voting common stock of Salty Corporation.On January 1,2009,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 1,2017.On July 2,2014,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 1,2014 through December 31,2014 for Popcorn Corporation. 2.Prepare the journal entries for July 1,2014 through December 31,2014 for Salty Corporation. 3.Prepare the elimination entries necessary on the consolidating working papers for the year ended December 31,2014.

Platts Incorporated purchased 80% of Scarab Company several years ago when the fair value equaled the book value.On January 1,2013,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 1,2014,Platts purchased all of Scarab's bonds for $96,000. Required: 1.Prepare the journal entries in 2014 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 31,2014.

Use the following information to answer the question(s)below. Plenty Corporation issued six thousand,$1,000 par,6% bonds on January 1,2012,at par.Interest is paid on January 1 and July 1 of each year;the bonds mature on January 1,2017.On January 2,2014,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 2014 included the annual interest expense for all 3,000 bonds.Scrawn's separate net income for 2014 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 2,2015 at 98,the gain or (loss)from the intercompany purchase 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 2,2013,Seri purchased $100,000 par of Poe's outstanding 10% bonds for $103,000.The bonds were issued at par and mature on January 1,2016.Straight-line amortization is used.Separate incomes of Poe and Seri for 2013 are $350,000 and $120,000,respectively.Poe uses the equity method to account for the investment in Seri. -Noncontrolling interest share for 2013 was

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 2,2014,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 1,2019.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 31,2014.

Parkview Holdings owns 70% of Skyline Corporation.On January 1,2013,Skyline acquires half of the $2,000,000 of bonds originally issued by Parkview on January 1,2008.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 31,2008 through December 31,2018.

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 2,2013,Seri purchased $100,000 par of Poe's outstanding 10% bonds for $103,000.The bonds were issued at par and mature on January 1,2016.Straight-line amortization is used.Separate incomes of Poe and Seri for 2013 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 2013 was

No constructive gain or loss arises from the purchase of an affiliate's bonds if the

Using the original information,the balances for the Bonds Payable and Bond Interest Payable accounts,respectively,on the consolidated balance sheet for December 31,2015 were