Several years ago Brant, Inc., sold $960,000 in bonds to the public. Annual cash interest of 9 percent ($86,400) was to be paid on this debt. The bonds were issued at a discount to yield 12 percent. At the beginning of 2013, Zack Corporation (a wholly owned subsidiary of Brant) purchased $120,000 of these bonds on the open market for $141,000, a price based on an effective interest rate of 7 percent. The bond liability had a book value on that date of $820,000. Assume Brant uses the equity method to account internally for its investment in Zack. а. & b. What consolidation entry would be required for these bonds on December 31, 2013 and December 31, 2015?

Several years ago Brant, Inc., sold $960,000 in bonds to the public. Annual cash interest of 9 percent ($86,400) was to be paid on this debt. The bonds were issued at a discount to yield 12 percent. At the beginning of 2013, Zack Corporation (a wholly owned subsidiary of Brant) purchased $120,000 of these bonds on the open market for $141,000, a price based on an effective interest rate of 7 percent. The bond liability had a book value on that date of $820,000. Assume Brant uses the equity method to account internally for its investment in Zack. а. & b. What consolidation entry would be required for these bonds on December 31, 2013 and December 31, 2015?

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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Concept explainers

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.

Question

Several years ago Brant, Inc., sold $960,000
in bonds to the public. Annual cash interest
of 9 percent ($86,400) was to be paid on
this debt. The bonds were issued at a
discount to yield 12 percent. At the
beginning of 2013, Zack Corporation (a
wholly owned subsidiary of Brant)
purchased $120,000 of these bonds on the
open market for $141,000, a price based on
an effective interest rate of 7 percent. The
bond liability had a book value on that date
of $820,000. Assume Brant uses the equity
method to account internally for its
investment in Zack.
а.
&
b.
What consolidation entry would be required for these bonds on December
31, 2013 and December 31, 2015?
శంత వ

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