Concept explainers
a.
Introduction: Consolidation is the process of combining financial results of various subsidiaries with the financial results of parent company. It is used only when parent company holds more than 50% of share of subsidiary company.Bond is an instrument issued by the companies to fulfil their need of large amount of borrowings. It is the instrument of indebtedness where issuer is obliged to pay the interest on it.When a company buyback its bonds for certain purpose, then it is called bond retirement. Loss or gain in bond retirement is difference between the carrying amount of both the companies i.e. issuing company and purchasing company.
The
b.
Introduction: Consolidation is the process of combining financial results of various subsidiaries with the financial results of parent company. It is used only when parent company holds more than 50% of share of subsidiary company
Loss or gain on bond retirement: When a company buyback its bonds for certain purpose, then it is called bond retirement. Loss or gain in bond retirement is difference between the carrying amount of both the companies i.e. issuing company and purchasing company.
The amount of income assigned to non-controlling interest if net income of S company is $20000.
c.
Introduction: Consolidation is the process of combining financial results of various subsidiaries with the financial results of parent company. It is used only when parent company holds more than 50% of share of subsidiary company
Loss or gain on bond retirement: When a company buyback its bonds for certain purpose, then it is called bond retirement. Loss or gain in bond retirement is difference between the carrying amount of both the companies i.e. issuing company and purchasing company.
The journal entries needed to remove the effect of intercompany bond transactions for 20X9.
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ADVANCED FINANCIAL ACCOUNTING IA
- Parilo Company acquired 170,000 of Makofske Co., 5% bonds on May 1, 2016, at their face amount. Interest is paid semiannually on May 1 and November 1. On November 1, 2016, Parilo Company sold 50,000 of the bonds for 96. Journalize entries to record the following: a. The initial acquisition of the bonds on May 1. b. The semiannual interest received on November 1. c. The sale of the bonds on November 1. d. The accrual of 1,000 interest on December 31, 2016.arrow_forwardBula Investments acquired $260,400 of Effenstein Corp., 10% bonds at their face amount on October 1, 20Y1. The bonds pay interest on October 1 and April 1. On April 1, 20Y2, Bula sold $67,600 of Effenstein Corp. bonds at 103. Required: Journalize the entries to record the following: a. The initial acquisition of the Effenstein Corp. bonds on October 1, 20Y1.* b. The adjusting entry for 3 months of accrued interest earned on the Effenstein Corp. bonds on December 31, 20Y1.* c. The receipt of semiannual interest on April 1, 20Y2.* d. The sale of $67,600 of Effenstein Corp. bonds on April 1, 20Y2, at 103.* e. The receipt of the face value of the remaining bonds at their maturity on October 1, 20Y8.*arrow_forwardTanner-UNF corporation acquired as a long-term investment $260 million of 5% bonds, Company management has classified the bonds as an available-for-sale investment. The market interest rate (yield) was 7% for bonds of similar risk and maturity. Tanner-UNF paid $200 million for the bonds. The company will receive interest semiannually on June 30 and December 31. As a result of changing market conditions, the fair value of the bonds at December 31, 2021, was $215 million. Required: Suppose Moody’s bond rating agency downgraded the risk rating of the bonds motivation Tanner-UNF to sell the investment on January 2, 2022, for $190 million. Prepare the journal entries necessary to record the sale, including updating the fair-value adjustment, recording any reclassification adjustment, and recording the sale. (If no entry is required for a transaction/event, select “No journal entry required” in the first account field. Enter your answers in millions rounded to 1 decimal place, (i.e.,…arrow_forward
- Tanner-UNF corporation acquired as a long-term investment $260 million of 5% bonds, Company management has classified the bonds as an available-for-sale investment. The market interest rate (yield) was 7% for bonds of similar risk and maturity. Tanner-UNF paid $200 million for the bonds. The company will receive interest semiannually on June 30 and December 31. As a result of changing market conditions, the fair value of the bonds at December 31, 2021, was $215 million.arrow_forwardCorporation acquired an investment at amortized cost in Screen Company's 10-yr, 12% bonds, withface value of P5.000.000 for P5,386,300. Interest is payable semi annually on January 1 and July 1. The bonds mature on July 1, 2024. Bonds effective rate is 10%. On December 31, 2020, Hello sold its debt instrument at 110. What amount of gain should Hello corporation recognize as a result of thearrow_forwardSatum Corporation issued $300,000 par value 10-year bonds at 107 on January 1, 20X3, which Star Corporation purchased On July 1, 20X7, Pluto Corporation purchased $120,000 face value of Saturn bonds from Star. The bonds pay 12 percent interest annually on December 31 The preparation of consolidated financial statements for Saturn and Pluto at December 31, 20X9, required the following consolidation entry Prentum on Bonds Payable Interest Income Investment in Saturn Corporation Bonds Interest Expense Investment in Saturn Corporation Stock MCI in Net Assets of Saturn Corporation 120,000 2,520 14,760 118,920 13,560 3,120 1,680 on the information given above, what percentage of the subsidiary's ownership does the parent company hold?arrow_forward
- Demopoulos Company acquired $150,000 of Marimar Co., 6% bonds on May 1 at their face amount. Interest is paid semiannually on May 1 and November 1. On November 1, Demopoulos Company sold $55,000 of the bonds for 98. Journalize the entries to record the following: If an amount box does not require an entry, leave it blank. Question Content Area a. The initial acquisition of the bonds on May 1. May 1 Investments-Marimar Co. Bonds Investments-Marimar Co. Bonds Cash Cash Feedback Area Feedback a. Record the investment at par and the cash paid. Question Content Area b. The semiannual interest received on November 1. Nov. 1 Cash Cash Interest Revenue Interest Revenue Feedback Area Feedback b. Bond face amount x interest rate x part of a year = interest revenue (credit) and Cash (debit). Question Content Area c. The sale of the bonds on November 1. Nov. 1 Cash Cash…arrow_forwardOn January 02, 2022. Milk Tea Company purchased 8% P1,000,000 face value bonds of Matcha Corporation of P922.768 and designated as at fair value through profit or loss (FVTPL) Transaction costs incurred by Milk Tea Company relative to the acquisition is P30,000. These bonds mature on December 31, 2026. The bonds were purchased to yield 10%. Interest is payable semi annually every June 30 and December 31. On December 31, 2022, the bonds are quoted 99 while on December 31, 2023, the bonds are quoted @ 102. On April 30, 2024, Milk Tea Company sold P600,000 face value bonds @ 101 plus accrued interest Which of the following is part of the entries of Milk Tea Company to be recognized in 2022? A.) Credit Unrealized Gain on DI at FVTPL - 37,232 B.) Credit Cash - 952,768 C.) Debit Debt Investment at FVTPL - 952,768 D.) Credit Interest Revenue - 73,821.44arrow_forwardTanner-UNF Corporation acquired as a long-term investment $260.0 million of 7.0 % bonds, dated July 1, on July 1, 2024. Company management has the positive intent and ability to hold the bonds until maturity. Tanner-UNF paid $260.0 million for the bonds. The company will receive interest semiannually on June 30 and December 31. As a result of changing market conditions, the fair value of the bonds at December 31, 2024, was $240.0 million. Required: 1. How will Tanner-UNF's investment in the bonds on July 1, 2024 affect the financial statements? 2. How will Tanner-UNF's receipt of interest on December 31, 2024, affect the financial statements? 3. At what amount will Tanner-UNF report its investment in the December 31, 2024, balance sheet? 4. Suppose Moody's bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sell the investment on January 2, 2025, for $220.0 million. How will the sale of the bond investment affect Tanner-UNF's financial statements?…arrow_forward
- On 1/1/2019, Allie Company issued bonds payable of $500,000 at 8%. It was sold at $464,000 with effective interest rate of 9%. On 1/1/2020, Choco purchased all of Allie's bond for $532,000 cash with effective interest at 7% and Allie's bonds payable has been effectively retired. 3) Compute the consolidated gain or loss on a consolidated income statement for at the end of 2020arrow_forwardOn January 1, 20x1, Pizza Co. acquired P300,000 face amount 10% bonds of Mojo, Inc. for P300,000. Pizza classifies the bonds as subsequently measured at fair value through other comprehensive income. On December 31, 20x1, the fair value of the bonds was P270,000. Pizza estimates 12-month expected credit losses of P9,000. Requirements: Prepare the journal entry to recognize the decrease in the fair value of the investment.arrow_forwardSaturn Corporation issued $300,000 par value 10-year bonds at 107 on January 1, 20X3, which Star Corporation purchased. On July 1, 20X7, Pluto Corporation purchased $120,000 face value of Saturn bonds from Star. The bonds pay 12 percent interest annually on December 31. The preparation of consolidated financial statements for Saturn and Pluto at December 31, 20X9, required the following consolidation entry: Bonds Payable Premium on Bonds Payable Interest Income Investment in Saturn Corporation Bonds Interest Expense Investment in Saturn Corporation Stock NCI in NA of Saturn Corp. Multiple Choice Based on the information given above, what amount did Pluto pay when it purchased the bonds on July 1, 20X7? $118.020 $118.920 $118.620 120,000 2,520 14,760 $117.220 118,920 13,560 3,120 1,680arrow_forward
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