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. 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: 6\% bonds payable \ 300,000 Premium on bonds 7,200 Interest expense 16,200 Investment in Pascalian bonds \ 97,600 Interst income 6,600 -With respect to the bond purchase,the consolidated income statement of Pfadt Corporation and Subsidiary for 2013 showed a gain or loss of

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.

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. -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

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. -Using the original information,the amount of consolidated Interest Expense for 2014 was

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.

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.

If the market rate of interest on bonds that are recorded increases,the market value of the liability increases.

If the price paid by an affiliate to acquire the debt of another is less than the book value of the debt,a constructive loss on retirement of debt occurs.

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

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: 6\% bonds payable \ 300,000 Premium on bonds 7,200 Interest expense 16,200 Investment in Pascalian bonds \ 97,600 Interst income 6,600 -Bonds Payable appeared in the December 31,2013 consolidated balance sheet of Pfadt Corporation and Subsidiary in the amount of

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

Separate company and consolidated income statements for Pitta and Sojourn Corporations for the year ended December 31,2013 are summarized as follows: Sales Revenue \ 500,000 \ 100,000 \ 600,000 Income from Sojoum 19,900 Bond interest income 6,000 Gain on bond retirement 3,000 Total revenues 519,900 106,000 603,000 Cost of sales \ 280,000 \ 50,000 \ 330,000 Bond interest expense 9,000 3,600 Other expenses Total expenses Consolidated net income Noncontrolling interest share Separate net income and Control.interest share in The interest income and expense eliminations relate to a $100,000,9% bond issue that was issued at par value and matures on January 1,2018.On January 2,2013,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 2013? 3.What portion of the bonds payable is held by nonaffiliates at December 31,2013? 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.

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

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

A constructive retirement of parent bonds occurs when an affiliate purchases outstanding bonds of the parent.

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: 6\% bonds payable \ 300,000 Premium on bonds 7,200 Interest expense 16,200 Investment in Pascalian bonds \ 97,600 Interst income 6,600 -Consolidated Interest Expense and consolidated Interest Income,respectively,that appeared on the consolidated income statement for the year ended December 31,2013 was

Pickle Incorporated acquired a $10,000 bond originally issued by its 80%-owned subsidiary on January 2,2013.The bond was issued in a prior year for $11,250,matures January 1,2018,and pays 9% interest at December 31.The bond's book value at January 2,2013 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 2013?

When a company issues bonds,the bond liability will reflect the current market rate of interest.