a.
Introduction: When an affiliate of the issuer later acquires bonds from an unrelated party, the bonds are retired at the time of purchase. The bonds are not held outside the consolidated entity once another company within the consolidated entity purchases them, it must be treated as repurchase by the debtor. The acquisition of an affiliate’s bonds by another company within affiliated entities is referred to as constructive retirement. Although bonds are not actually retired.
When constructive retirement occurs the consolidated income statement reports gain or loss based on the difference between carrying value and purchase price paid by the affiliate to acquire it. And it is not reported in the consolidated
Requirement 1
The preparation of consolidation worksheet for 20X3
b.
Introduction: When an affiliate of the issuer later acquires bonds from an unrelated party, the bonds are retired at the time of purchase. The bonds are not held outside the consolidated entity once another company within the consolidated entity purchases them, it must be treated as repurchase by the debtor. The acquisition of an affiliate’s bonds by another company within affiliated entities is referred to as constructive retirement. Although bonds are not actually retired.
When constructive retirement occurs the consolidated income statement reports gain or loss based on the difference between carrying value and purchase price paid by the affiliate to acquire it. And it is not reported in the consolidated balance sheet either as bond payable or as an investment because the bonds are no longer outstanding.
Requirement 2
The preparation of consolidated balance sheet, income statement and statement of changes in retained earnings for 20X3
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ADVANCED FINANCIAL ACCOUNTING IA
- 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. 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. Do not round your Intermediate calculations. Round your final answers to nearest whole dollar.) Answer is complete but not entirely correct. No Event A 1 Bonds payable Premium on bonds payable Accounts Investment in Suspect Company bonds Gain on bond retirement B 2 Interest payable Interest receivable Debit Credit 400,000 9,000 397,000 9,000…arrow_forwardGonzalez Company acquired $210,000 of Walker Co., 5% bonds on May 1 at their face amount. Interest is paid semiannually on May 1 and November 1. On November 1, Gonzalez Company sold $44,400 of the bonds for 95. Journalize entries to record the following in Year 1: For a compound transaction, if an amount box does not require an entry, leave it blank. a. The initial acquisition of the bonds on May 1. May 1 fill in the blank 2db398fc5fbefe9_2 fill in the blank 2db398fc5fbefe9_4 b. The semiannual interest received on November 1. Nov. 1 fill in the blank 12a681fdb06bff7_2 fill in the blank 12a681fdb06bff7_4 c. The sale of the bonds on November 1. Nov. 1 fill in the blank cee7ff00dfa3fc5_2 fill in the blank cee7ff00dfa3fc5_3 fill in the blank cee7ff00dfa3fc5_5 fill in the blank cee7ff00dfa3fc5_6 fill in the blank cee7ff00dfa3fc5_8 fill in the blank cee7ff00dfa3fc5_9 d. The accrual of $1,380…arrow_forwardTanner-UNF Corporation acquired as a long-term investment $200 million of 6% bonds, dated July 1, 2024. Assume Tanner-UNF management is holding the bonds as available-for-sale securities. 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, 2024, was $210 million. Required: 1. to 3. Prepare the journal entry to record Tanner-UNF's investment in the bonds on July 1, 2024, interest on December 31, 2024, at the effective (market) rate and the fair value adjustment at December 31. 4. Suppose Moody's bond rating agency downgraded the risk rating of the bonds motiving Tanner-UNF to sell the investment on January 2, 2025, for $190 million. Prepare the journal entry to record the sale. Complete this question by entering your answers in the tabs below. Req 1 to 3 Req 4 Suppose Moody's bond rating agency downgraded the risk rating of the bonds…arrow_forward
- Gonzalez Company acquired $177,000 of Walker Co., 8% bonds on May 1 at their face amount. Interest is paid semiannually on May 1 and November 1. On November 1, Gonzalez Company sold $45,600 of the bonds for 97. Journalize entries to record the following in Year 1: For a compound transaction, if an amount box does not require an entry, leave it blank. a. The initial acquisition of the bonds on May 1. May 1 Investments-Walker Co. Bonds Cash Feedback a. Record the investment at par and the cash paid. b. The semiannual interest received on November 1. Nov. 1 Cash Interest Revenuearrow_forwardPowell Company owns an 80% interest in Sauter, Inc. On January 1, 20X1, Sauter issued $400,000 of 10-year, 12% bonds at a premium of $50,000. On December 31, 20X5, 5 years after original issuance, Powell purchased all of the outstanding bonds for $390,000. Both firms use the straight-line method of amortization. The interest adjustment in the 20X5 subsidiary income distribution schedule is ____. a. $2,000 b. $5,000 c. $4,500 d. $0arrow_forwardPacked Corporation owns 70 percent of Snowball Enterprises' stock. On January 1, 20X1, Packed sold $1.13 million par value, 6 percent (paid semiannually), 20-year, first mortgage bonds to Kling Corporation at 98. On January 1, 20X8, Snowball purchased $339,000 par value of the Packed bonds directly from Kling for $336,480. Required: Prepare the consolidation entry needed at December 31, 20X8, to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round your intermediate calculations. Round your final answers to nearest whole dollar.) X Answer is not complete. Accounts Debit Credit No A Event 1 Bonds payable 339,000 Interest income Loss on constructive bond retirement Investment in Packed Corporation bonds 336,674 Interest expense Discount on bonds payablearrow_forward
- Midyear purchase of subsidiary’s bonds Sanur Corporation is a 90 percent subsidiary of Pare Corporation. On January 1, 2016, Sanur issued $1,000,000 par, 10 percent 5-year bonds with an unamortized premium of $50,000. On July 1, 2016, Pare Corporation purchased $400,000 par of the outstanding bonds of Sanur for $390,000. Straight-line amortization is used. REQUIRED: Calculate the following: 1. The gain or loss on constructive retirement of the bonds 2. The consolidated bond interest expense for 2016 3. The consolidated bond liability at December 31, 2016arrow_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_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 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_forwardBig Co. owns 80% of the stock of Little. Co. On 1/1/23 Little issues $100,000 of 10%, 10 year bonds directly to Big for $102,000. Big and Little both use straight-line amortization. Prepare elimination entries RELATING TO THIS INTERCOMPANY TRANSACTION for 2023 and 2024arrow_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_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningFinancial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning