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Paulina, Incorporated, owns 80 percent of Southport Company. On January 1, 2021, Paulina acquires half of Southport's $610,000 outstanding 13-year bonds. These bonds had been sold on the open market on January 1, 2018, at a 12 percent effective rate. The bonds pay a cash interest rate of 10 percent every December 31 and are scheduled to come due on December 31, 2030. Southport issued this debt originally for $531,633. Paulina paid $345,931 for this investment, indicating an 8 percent effective yield. a. Assuming that both parties use the effective rate method, what gain or loss from the retirement of this debt should be reported on the consolidated income statement for 2020? b. Assuming that both parties use the effective rate method, what balances should appear in the Investment in Southport Bonds account on Paulina's records and the Bonds Payable account of Southport as of December 31, 2021? c. Assuming that both parties use the straight-line method, what consolidation entry would be required on December 31, 2021, because of these bonds? Assume that the parent is not applying the equity method.

Paulina, Incorporated, owns 80 percent of Southport Company. On January 1, 2021, Paulina acquires half of Southport's $610,000 outstanding 13-year bonds. These bonds had been sold on the open market on January 1, 2018, at a 12 percent effective rate. The bonds pay a cash interest rate of 10 percent every December 31 and are scheduled to come due on December 31, 2030. Southport issued this debt originally for $531,633. Paulina paid $345,931 for this investment, indicating an 8 percent effective yield. a. Assuming that both parties use the effective rate method, what gain or loss from the retirement of this debt should be reported on the consolidated income statement for 2020? b. Assuming that both parties use the effective rate method, what balances should appear in the Investment in Southport Bonds account on Paulina's records and the Bonds Payable account of Southport as of December 31, 2021? c. Assuming that both parties use the straight-line method, what consolidation entry would be required on December 31, 2021, because of these bonds? Assume that the parent is not applying the equity method.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Required A Required B Assuming that both parties use the effective rate method, what balances should appear in the Investment in Southport Bonds account on Paulina's records and the Bonds Payable account of Southport as of December 31, 2021? (Round your intermediate calculations and final answers to the nearest dollar amount.) Investment in Southport bonds, 12/31/21 Bonds payable, 12/31/21 Show Transcribed Text Required A Required B view transaction list Required C Consolidation Worksheet Entries < Required C Note: Enter debits before credits. Transaction 1 Assuming that both parties use the straight-line method, what consolidation entry would be required on December 31, 2021, because of these bonds? Assume that the parent is not applying the equity method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate calculations and final answers to the nearest dollar amount.) Show less A Record entry Amount < Required A Prepare Consolidation Entry *B to account for these bonds on December 31, 2021. 3 Accounts Required C > Clear entry c Debit Credit view consolidation entries
Transcribed Image Text:Required A Required B Assuming that both parties use the effective rate method, what balances should appear in the Investment in Southport Bonds account on Paulina's records and the Bonds Payable account of Southport as of December 31, 2021? (Round your intermediate calculations and final answers to the nearest dollar amount.) Investment in Southport bonds, 12/31/21 Bonds payable, 12/31/21 Show Transcribed Text Required A Required B view transaction list Required C Consolidation Worksheet Entries < Required C Note: Enter debits before credits. Transaction 1 Assuming that both parties use the straight-line method, what consolidation entry would be required on December 31, 2021, because of these bonds? Assume that the parent is not applying the equity method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate calculations and final answers to the nearest dollar amount.) Show less A Record entry Amount < Required A Prepare Consolidation Entry *B to account for these bonds on December 31, 2021. 3 Accounts Required C > Clear entry c Debit Credit view consolidation entries
Paulina, Incorporated, owns 80 percent of Southport Company. On January 1, 2021, Paulina acquires half of Southport's $610,000 outstanding 13-year bonds. These bonds had been sold on the open market on January 1, 2018, at a 12 percent effective rate. The bonds pay a cash interest rate of 10 percent every December 31 and are scheduled to come due on December 31, 2030. Southport issued this debt originally for $531,633. Paulina paid $345,931 for this investment, indicating an 8 percent effective yield. a. Assuming that both parties use the effective rate method, what gain or loss from the retirement of this debt should be reported on the consolidated income statement for 2020? b. Assuming that both parties use the effective rate method, what balances should appear in the Investment in Southport Bonds account on Paulina's records and the Bonds Payable account of Southport as of December 31, 2021? c. Assuming that both parties use the straight-line method, what consolidation entry would be required on December 31, 2021, because of these bonds? Assume that the parent is not applying the equity method. Complete this question by entering your answers in the tabs below. Required A Required B Required C Assuming that both parties use the effective rate method, what gain or loss from the retirement of this debt should be reported on the consolidated income statement for 2020? (Round your intermediate calculations and final answers to the nearest dollar amount.) < Required A Required B >
Transcribed Image Text:Paulina, Incorporated, owns 80 percent of Southport Company. On January 1, 2021, Paulina acquires half of Southport's $610,000 outstanding 13-year bonds. These bonds had been sold on the open market on January 1, 2018, at a 12 percent effective rate. The bonds pay a cash interest rate of 10 percent every December 31 and are scheduled to come due on December 31, 2030. Southport issued this debt originally for $531,633. Paulina paid $345,931 for this investment, indicating an 8 percent effective yield. a. Assuming that both parties use the effective rate method, what gain or loss from the retirement of this debt should be reported on the consolidated income statement for 2020? b. Assuming that both parties use the effective rate method, what balances should appear in the Investment in Southport Bonds account on Paulina's records and the Bonds Payable account of Southport as of December 31, 2021? c. Assuming that both parties use the straight-line method, what consolidation entry would be required on December 31, 2021, because of these bonds? Assume that the parent is not applying the equity method. Complete this question by entering your answers in the tabs below. Required A Required B Required C Assuming that both parties use the effective rate method, what gain or loss from the retirement of this debt should be reported on the consolidated income statement for 2020? (Round your intermediate calculations and final answers to the nearest dollar amount.) < Required A Required B >
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