Pepper Enterprises owns 95 percent of Salt Corporation. On January 1, 20X1, Salt Issued $270,000 of five-year bonds at 115. Annualinterest of 12 percent is paid semiannually on January 1 and July 1. Pepper purchased $170,000 of the bonds on August 31, 20X3, atpar value. The following balances are taken from the separate 20X3 financial statements of the two companies:Note: Assume using straight-line amortization of bond discount or premium.Investment in Salt Corporation BondsPepperEnterprises$ 175,7007,85010,200SaltCorporationInterest IncomeInterest ReceivableBonds PayableBond PremiumInterest ExpenseInterest PayableRequired:$ 270,00026,70024,30020,400a. Compute the amount of interest expense that should be reported in the consolidated income statement for 20X3.b. Compute the gain or loss on constructive bond retirement that should be reported in the 20X3 consolidated income statement.c. Prepare the consolidation worksheet consolidation entry or entries as of December 31, 20X3, to remove the effects of theintercorporate bond ownership

A. Interest ExpensePepper's Interest Expense:Pepper purchased the bonds at par value, so no interest…

Answered: Pepper Enterprises owns 95 percent of…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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On July 1, 2002, Durable Company purchased Rose Corporation 10-year, 12% bonds with face value of P300,000 for P324,000, which included P12,000 of accrued interest. The bonds, which mature on March 1, 2009, pay interest semi-annually on March 1 and September 1. Durable appropriately uses the straight line method of amortization. The amount of income Durable should report for the calendar year 2002 as a result of this long-term investment?
On July 1, Year 1, XYZ Corporation purchased as a long-term investment a $2 million face amountABC Co. 6% bond for $2,025,000 plus accrued interest to yield 5.75%. On December 31, Year 1,the bonds had a fair value of $1,850,000. What amount of income should XYZ report on its incomestatement for the year ended December 31, Year 1, related to this bond investment if it is classifiedas a held-to-maturity security?a. $120,000b. $116,438c. $121,500d. $115,000
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An entity acquired 10-year bonds at a premium. The investment is measured at amortized cost. Seven years after the acquisition, the entity sold 90% of the bonds at a discount. Which of the following is true? A. Gain is realized on the sale. B. The remaining 10% should be reclassified out of the amortized cost measument category. C. Loss is realized on the sale. D. B and C
) Soap Company issued $200,000 of 8%, 5-year bonds on January 1, 20X6. The discount on issuance was $12,000. Bond interest is paid annually on December 31. On December 31, 20X8, Pumice Company purchased one-half of the outstanding bonds for $96,000. Both companies use the straight-line method of amortization. checked How much interest expense will appear on the December 31, 20X9, consolidated income statement? a. $18,400 b. $16,000 c. $9,200 d. $8,000
On January 1, Jules Company purchased for cash, $50,000 bonds (10, $5,000 bonds) of Android Corporation at a market rate of 6%. The bonds pay 6.5% interest, payable on a semiannual basis each June 30 and December 31, and mature on December 31 in five years. The bonds are classified as available-for-sale securities. The annual reporting period of Jules Company ends December 31. Assume the effective interest method of amortization of any discounts or premiums. Note: When answering the following questions, round answers to the nearest whole dollar. Amortization Schedule Journal Entries in Year 1 a. Prepare a bond amortization schedule for the year using the effective interest method. Date Stated Interest Jan. 1 June 30 $ Dec. 31 Check OS 0 Market Premium Bond Interest Amortization Amortized Cost 0 0 0 0$ 0 Financial Statement Presentation 0 0 $
Tanner-UNF Corporation acquired as a long-term investment $260 million of 6% bonds, dated July 1, on July 1, 2024. Company management has classified the bonds as an available-for-sale investment. The market interest rate (yield) was 8% for bonds of similar risk and maturity. Tanner-UNF paid $220 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 $230 million. Required: 1. & 2. Prepare the journal entry to record Tanner-UNF's investment in the bonds on July 1, 2024 and interest on December 31, 2024, at the effective (market) rate. 3. Prepare any additional journal entry necessary for Tanner-UNF to 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 $200 million. Prepare the journal entries…
uses the effective interest method of amortization. In its December 31, 2003 balance sheet, what amount should York report as investment in bonds? a. 911,300 b. 916,600 c. 953,300 d. 960,600 (AICPA) Use the following information for the next three questions: On Jan. 1, 20x1, Koong Co. acquired 100, P5,000 face amount, 10%, 3-year 'term' bonds of King Co. for P428,567. Koong incurred transaction costs of P25,000 on the acquisition. The effective interest rate adjusted for the transaction costs is 14%. The bonds were quoted at 102 on Dec. 31, 20x2. 2. How much are the interest income in 20x2 and the carrying amount of the bonds on Dec. 31, 20x2 if the bonds are held under a “hold to collect" business model? a. 65,389; 482,455 b. 65,389; 510,000 c. 55,276; 472,834 d. 50,000; 453,567 3. How much are the interest income in 20x2 and the carrying amount of the bonds on Dec. 31, 20x2 if the bonds are held under a “hold to collect and sell" business model? a. 65,389; 482,455 c. 50,000; 428,567…
On July 1 of Year 1, West Company purchased for cash, 8, $10,000 bonds of North Corporation to yield 10%. The bonds pay 9% interest, payable on a semiannual basis each July 1 and January 1, and mature in three years on July 1. The bonds are classified as AFS securities. West Company's annual reporting period ends December 31. Assume the effective interest method of amortization of any discount or premium. Note: When answering the following questions, round each amount to the nearest whole dollar. Amortization Schedule Journal Entries and Financial Statement Presentation for Year 1 a. Prepare a bond amortization schedule for Year 1 and Year 2 using the effective interest method. Discount Amortization Date Jul 1, Year 1 Jan. 1, Year 2 s Jul 1, Year 2 Stated Interest 8,100 $ 8,100x Market Interest 8,772 x 8.805 672 x 705 Bond Amortized Cost 175,433 X 176,104 x 176,810 x Journal Entries for Year 2
ABC Company , a holder of P1,000,000 XYZ Company bonds, collected the interest due on March 31, year 1, and then sold the bonds to W, Inc. for P975,000. On that date, XYZ, a 75% owner of W had P1,075,000 carrying amount for the bonds. What was the effect of W's purchase of XYZ's bond on the retained earnings amount reported in XYZ's March 31, year 1 consolidated balance sheet? (Answer format: amount increase/decrease e.g. 10000 decrease, if no effect, just type 0)
On November 1, 2015, Journeyman, LLC purchased 900 of the $1,000 face value, 9% bonds of Celebration Incorporated, for $948,000, including accrued interest of $13,500. The bonds matured on January 1, 2017, and interest was paid on March 1 and September 1. If Journeyman uses the straight-line method of amortization and the bonds are classified as available-for-sale, how should the net carrying value of the bonds be shown on Journeyman’s December 31, 2015 balance sheet?
Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2024. Company management has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 8% 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, 2024, was $210 million. Required: 1. 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 $190 million. Prepare the journal entry to record the sale.

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