Exam 7: Intercompany Profit Transactions - Bonds

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.

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

There are several theories for allocating constructive gains or losses between purchasing and issuing affiliates.The Agency Theory

Pachelor Corporation owns 70% of the outstanding stock of Stabb Company.On January 1,2013,Stabb issued $1,000,000 in 7% bonds that matured on January 1,2018.At the time of issuance,the bonds were sold at a discount of $125,000.At January 2,2015,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 31,2015.

The difference between the book value of a bond liability and the purchase price of the bond investment is a gain or loss for consolidated statement purposes.

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

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 -Bond Interest Receivable for 2013 of Pfadt's bonds on Senat's books 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 -The gain from the bond purchase that appeared on the December 31,2013 consolidated income statement was

Pelami Corporation owns a 90% interest in Sunbird Corporation.At December 31,2012,Sunbird had $3,000,000 of par value 6% bonds outstanding with an unamortized premium of $30,000.The bonds have interest payment dates of January 1 and July 1 and mature on January 1,2017. On January 2,2013,Pelami purchased $1,200,000 par value of Sunbird's outstanding bonds for $1,210,000.Assume straight-line amortization. Required: Prepare the necessary consolidation working paper entries with respect to the intercompany bonds for the year ending December 31,2013.

Sabu is a 65%-owned subsidiary of Peerless.On January 1,2012,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 1,2017.On January 1,2013,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 2012 to 2017. 2.Record the journal entries on Peerless' books made from 2012 to 2017. 3.Record the elimination entries for the consolidation working papers for 2012 through 2017.