Pesto Company possesses 80 percent of Salerno Company's outstanding voting stock. Pesto uses the initial value method to account for this investment. On January 1, 2017, Pesto sold 6 percent bonds payable with a $16.5 million face value (maturing in 20 years) on the open market at a premium of $750,000. On January 1, 2020, Salerno acquired 40 percent of these same bonds from an outside party at 96.6 percent of face value. Both companies use the straight-line method of amortization. For a 2021 consolidation, what adjustment should be made to Pesto's beginning Retained Earnings as a result of this bond acquisition?

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Pesto Company possesses 80 percent of Salerno Company's outstanding voting stock. Pesto uses th value method to account for this investment. On January 1, 2017, Pesto sold 6 percent bonds payab $16.5 million face value (maturing in 20 years) on the open market at a premium of $750,000. On Ja 2020, Salerno acquired 40 percent of these same bonds from an outside party at 96.6 percent of fa Both companies use the straight-line method of amortization. For a 2021 consolidation, what adjust

Pesto Company possesses 80 percent of Salerno Company's outstanding voting stock. Pesto uses th value method to account for this investment. On January 1, 2017, Pesto sold 6 percent bonds payab $16.5 million face value (maturing in 20 years) on the open market at a premium of $750,000. On Ja 2020, Salerno acquired 40 percent of these same bonds from an outside party at 96.6 percent of fa Both companies use the straight-line method of amortization. For a 2021 consolidation, what adjust

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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Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.

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Pesto Company possesses 80 percent of Salerno Company's outstanding voting stock. Pesto uses the initial value method to account for this investment. On January 1, 2017, Pesto sold 6 percent bonds payable with a $16.5 million face value (maturing in 20 years) on the open market at a premium of $750,000. On January 1, 2020, Salerno acquired 40 percent of these same bonds from an outside party at 96.6 percent of face value. Both companies use the straight-line method of amortization. For a 2021 consolidation, what adjustment should be made to Pesto's beginning Retained Earnings as a result of this bond acquisition?

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