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.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 gain or loss on bond retirement in 20X4.
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. 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
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. 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 balance of retained earnings as on December 31, 20X5.
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ADVANCED FINANCIAL ACCOUNTING IA
- Transfer between Categories On December 31, 2018, Leslie Company held an investment in bonds of Kaufmann Company which it categorized as being held to maturity. At that time, the 8%, 100,000 face value bonds had a carrying value of 107,023.56 and were being amortized using the effective interest method based on a market rate of 7%. Interest on these bonds is paid annually each December 31. On December 31, 2019, after recording the interest earned, Leslie decided to reclassify the Kaufmann bonds to its available-for-sale category in anticipation of a major restructuring. At that time, the ending quoted market price for the bonds was 105,000. Required: Prepare the journal entries on December 31, 2019, to record the interest earned and the reclassification.arrow_forwardPat Inc. purchased the $100.000 face value outstanding bonds of Slinger Company, its 80%-owned subsidiary, fo $101.300 (to yield 7.5% annual interest) on January 1, 20X3. The bonds have a stated nominal interest rate of 8°. The bonds were sold on January 1, 20X1, for $101,005 to yield 7.75% annual interest. The bonds mature on Janu 20X6. The bonds pay interest each January 1. Amortizations of premiums are done using the effective interest "amortization method. Instructions: 1. Prepare the 5-year amortization schedule for the bonds issued by Slinger. 7.75% Interest 2. 3. 4. Date 1/1/X1 1/1/X2 1/1/X3 1/1/X4 1/1/X5 1/1/X6 Payment 8,000 8,000 8,000 8,000 8,000 Prepare the 3-year amortization schedule for the bonds purchased by Pat Inc. Date Payment 7.5% Interest 1/1/X3 1/1/X4 Amortization 1/1/X5 1/1/X6 Amortization 8,000 8,000 8,000 Record the entries made by Slinger in 20X3 relative to the bonds. Record the entries made by Pat Inc. in 20X3 relative to the bonds. Balance 101,005 Balance…arrow_forward3. On October 1, Dennis Company purchased P200,000 face value 12% bonds for 98 plus accrued interest and brokerage fees and classified them as held-to-maturity securities. Interest is paid semiannually on January 1 and July 1. Brokerage fees for this transaction were P700. At what amount should this acquisition of bonds be recorded? a. P196,000 b. P196,700 c. P202,000 d. P202,700arrow_forward
- Suspect Company issued $600,000 of 9 percent first mortgage bonds on January 1, 20X1, at 103. The bonds mature in 20 years and pay interest semiannually on January 1 and July 1. Prime Corporation purchased $400,000 of Suspect's bonds from the original purchaser on December 31, 20X5, for $397,000. Prime owns 60 percent of Suspect's voting common stock. Note: Assume using straight-line amortization of bond discount or premium. Required: a. Prepare the worksheet consolidation entry or entries needed to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements for 20X5. b. Prepare the worksheet consolidation entry or entries needed to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements for 20X6. Complete this question by entering your answers in the tabs below. Required A Required B Prepare the worksheet consolidation entry or entries needed to remove the effects of the intercorporate bond…arrow_forwardSuspect Company Issued $600,000 of 9 percent first mortgage bonds on January 1, 20X1, at 103. The bonds mature in 20 years and pay Interest semiannually on January 1 and July 1. Prime Corporation purchased $400,000 of Suspect's bonds from the original purchaser on December 31, 20X5, for $397,000. Prime owns 60 percent of Suspect's voting common stock. Note: Assume using straight-line amortization of bond discount or premium. Required: a. Prepare the worksheet consolidation entry or entries needed to remove the effects of the Intercorporate bond ownership In preparing consolidated financial statements for 20X5. (If no entry is required for a transaction/event, select "No journal entry required" In the first account field.) Answer is complete and correct. No Event A 1 Bonds payable Premium on bonds payable Accounts Debit Credit 400,000 9,000 Investment in Suspect Company bonds Gain on bond retirement 397,000 12,000 B 2 Interest payable Interest receivable 18,000 18,000 b. Prepare the…arrow_forwardSuspect Company issued $600,000 of 9 percent first mortgage bonds on January 1, 20X1, at 103. The bonds mature in 20 years and pay interest semiannually on January 1 and July 1. Prime Corporation purchased $400,000 of Suspect's bonds from the original purchaser on January 1, 20X5, for $396,800. Prime owns 60 percent of Suspect's voting common stock. Note: Assume using straight-line amortization of bond discount or premium. Required: a. Prepare the worksheet consolidation entry or entries needed to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements for 20X5. b. Prepare the worksheet consolidation entry or entries needed to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements for 20X6. Complete this question by entering your answers in the tabs below. Required A Required B Prepare the worksheet consolidation entry or entries needed to remove the effects of the intercorporate bond…arrow_forward
- Suspect Company issued $600,000 of 9 percent first mortgage bonds on January 1, 20X1, at 103. The bonds mature in 20 years and pay interest semiannually on January 1 and July 1. Prime Corporation purchased $400,000 of Suspect’s bonds from the original purchaser on January 1, 20X5, for $396,800. Prime owns 60 percent of Suspect’s voting common stock. Note: Assume using straight-line amortization of bond discount or premium. a. Prepare the worksheet consolidation entry or entries needed to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements for 20X5. Bond Payable Debit $400,000 Premium on Bond Debit $9,000 Interest Income Debit $______ Investment in Suspect Bond Credit $397,000 Interest Expense Credit $_________ Gain on Bond Retirement Credit $ _________ Interest Payable Debit $18,000 Interest Receivable Credit $18,000 b. Prepare the worksheet consolidation entry or entries needed to remove the effects of the…arrow_forwardSuspect Company issued $1,110,000 of 8 percent first mortgage bonds on January 1, 20X1, at 104. The bonds mature in 20 years and pay interest semiannually on January 1 and July 1. Prime Corporation purchased $740,000 of Suspect’s bonds from the original purchaser on December 31, 20X5, for $736,000. Prime owns 70 percent of Suspect’s voting common stock. Required:a. Prepare the worksheet consolidation entry or entries needed to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements for 20X5 b. Prepare the worksheet consolidation entry or entries needed to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements for 20X6.arrow_forwardDemopoulos 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. 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 $950 interest on December 31.arrow_forward
- Mar. 31 Acquired 8% Distribution Transformers Corporation bonds costing $410,000 at face value. Sep. 1 Acquired $930,000 of American Instruments' 10% bonds at face value. Sep. 30 Received semiannual interest payment on the Distribution Transformers bonds. Oct. 2 Sold the Distribution Transformers bonds for $440,000. Nov. 1 Purchased $1,450,000 of M&D Corporation 6% bonds at face value. Dec. 31 Recorded any necessary adjusting entry(s) relating to the investments. The market prices of the investments are American Instruments bonds M&D Corporation bonds (Hint: Interest must be accrued.) Required: 1. Prepare the appropriate journal entry for each transaction or event during 2021, as well as any adjusting entries necessary at year end. 2. Indicate any amounts that Ornamental Insulation would report in its 2021 income statement, 2021 statement of comprehensive income, and 12/31/2021 balance sheet as a result of these investments. Include totals for net income, comprehensive income, and…arrow_forwardMay 1 and November 1. On November 1, Demopoulos Company sold Journalize the entries to record the following: If an amount box does not require an entry, leave it blank. a. The initial acquisition of the bonds on May 1. May 1 b. The semiannual interest received on November 1. Nov. 1 c. The sale of the bonds on November 1. Nov. 1 000 d. The accrual of $1,855 interest on December 31. Dec. 31arrow_forwardAccounting for debt instruments purchased at a discount - FV-NI model On January 1, 2023, Pluto Corp. which follows ASPE acquired 6%, $100,000 (face value) bonds of Uranus Ltd., to yield 8%. The bonds were dated January 1, 2023, and mature on December 31, 2028, with interest payable each January 1. Pluto intends to hold the bonds to maturity and will use the FV-NI model and the effective interest method of amortization of bond premium or discount. Instructions Prepare the following entries in Pluto's books: a) Acquisition of bonds on January 1, 2023, b) Year-end adjusting entry at December 31, 2023, c) Receipt of the first interest payment on January 1, 2024. Round all values to the nearest dollar.arrow_forward
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