a
Bond sale directly to an affiliate: When intercompany sale of bonds takes place between affiliates, all effects of intercompany indebtedness must be eliminated for the purpose of consolidated financial statements. As a company cannot report an investment in its own bonds or bond liability to itself. Thus when the consolidated entity is viewed as a single company all amounts related to intercompany indebtedness are eliminated.
When the coupon or nominal interest rate on a bond is different from the yield, a bond is said to be sold at discount or premium, in this cases the amount of interest income and expense recorded no longer equals to interest payments. In that case interest income or expense are adjusted for the amortization of the discount or premium.
Requirement 1
amount of interest expense should be reported in the year 20X4 consolidated income statement.
b
Bond sale directly to an affiliate: When intercompany sale of bonds takes place between affiliates, all effects of intercompany indebtedness must be eliminated for the purpose of consolidated financial statements. As a company cannot report an investment in its own bonds or bond liability to itself. Thus when the consolidated entity is viewed as a single company all amounts related to intercompany indebtedness are eliminated.
When the coupon or nominal interest rate on a bond is different from the yield, a bond is said to be sold at discount or premium, in this cases the amount of interest income and expense recorded no longer equals to interest payments. In that case interest income or expense are adjusted for the amortization of the discount or premium.
Requirement 2
The entries P record during 20X4 with regards to investment in S bonds.
c
Bond sale directly to an affiliate: When intercompany sale of bonds takes place between affiliates, all effects of intercompany indebtedness must be eliminated for the purpose of consolidated financial statements. As a company cannot report an investment in its own bonds or bond liability to itself. Thus when the consolidated entity is viewed as a single company all amounts related to intercompany indebtedness are eliminated.
When the coupon or nominal interest rate on a bond is different from the yield, a bond is said to be sold at discount or premium, in this cases the amount of interest income and expense recorded no longer equals to interest payments. In that case interest income or expense are adjusted for the amortization of the discount or premium.
Requirement 3
necessary consolidation entries needed to eliminate intercompany bond ownership for 20X4
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ADVANCED FINANCIAL ACCOUNTING IA
- Waldron Inc. issued $400,000 bonds with a stated rate of 7% when the market rate was 5%. They are 3-year bonds with interest to be paid annually. Prepare a table to amortize the premium of the bonds. Assume that the bonds were issued for $421,844.arrow_forwardPinetop Corporation issued $150,000 10-year bonds at par. The bonds have a stated rate of 6% and pay interest annually. What is the journal entry to record the sale of the bonds?arrow_forwardOn Jan. 1, Year 1, Foxcroft Inc. issued 100 bonds with a face value of $1,000 for $104,000. The bonds had a stated rate of 6% and paid interest semiannually. What is the journal entry to record the issuance of the bonds?arrow_forward
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