Effective interest method of bond amortization: When bond is sold at premium, the amount of premium must be amortized to interest expense over the life of bond. The preferred method of amortization is the effective interest method. In this method, the amount of interest expense in a given year will correlate with the amount of the
Retirement of bonds: When a constrictive retirement occurs, the consolidated income statement for the period reports a gain or loss on retirement, but not reported in consolidated
The amount of interest expenses that should be reported in consolidated income statement for 20X3.
b
Effective interest method of bond amortization: When bond is sold at premium, the amount of premium must be amortized to interest expense over the life of bond. The preferred method of amortization is the effective interest method. In this method, the amount of interest expense in a given year will correlate with the amount of the bond’s book value.
Retirement of bonds: When a constrictive retirement occurs, the consolidated income statement for the period reports a gain or loss on retirement, but not reported in consolidated balance sheet. If the company purchases the bond of an affiliate from an unrelated party at a price equal to the liability reported, the elimination entries is required to be prepared in consolidated financial statement.
The amount of gain or loss on constructive bond retirement to be reported in 20X3.
c
Effective interest method of bond amortization: When bond is sold at premium, the amount of premium must be amortized to interest expense over the life of bond. The preferred method of amortization is the effective interest method. In this method, the amount of interest expense in a given year will correlate with the amount of the bond’s book value.
Retirement of bonds: When a constrictive retirement occurs, the consolidated income statement for the period reports a gain or loss on retirement, but not reported in consolidated balance sheet. If the company purchases the bond of an affiliate from an unrelated party at a price equal to the liability reported, the elimination entries is required to be prepared in consolidated financial statement.
Preparation of elimination entries for consolidation work sheet for December 31, 20X3.
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Chapter 8 Solutions
ADVANCED FINANCIAL ACCT.(LL) >CUSTOM<
- Parilo Company acquired $183,600 of Makofske Company, 6% bonds on May 1, 20Y5, at their face amount. Interest is paid semiannually on May 1 and November 1. On November 1, 20Y5, Parilo sold $52,200 of the bonds for 96. Journalize the entries to record the following under the cost method:arrow_forwardPLEASE SHOW DETAILED STEPSarrow_forwardOn January 1, Year 2, Grand Company purchased as held for collection investment P1,000,000 face value of Greek Company’s 8% bonds for P912,400. The bonds were purchased to yield 10% interest. The bonds mature on January 1 Year 7, and pay interest annually on January 1. What amount should Grand Company report on its December 31, Year 2 statement of financial position for held for collection investment?arrow_forward
- Please correct Solution with Explanation and do not give image formatarrow_forwardGonzalez Company acquired $183,600 of Walker Co., 4% bonds on May 1 at their face amount. Interest is paid semiannually on May 1 and November 1. On November 1, Gonzalez Company sold $43,800 of the bonds for 97. Journalize entries to record the following in Year 1 (refer to the Chart of Accounts for exact wording of account titles): a. The initial acquisition of the bonds on May 1. b. The semiannual interest received on November 1. c. The sale of the bonds on November 1. d. The accrual of $932 interest on December 31.arrow_forwardOn August 1, Year 1, Ant Company sold Bee Company $1,500,000 of 10-year, 6% bonds, dated July 1 at 100 plus accrued interest. On March 1, Year 2, Bee sold half of the bonds for $782,500 plus accrued interest. Present entries to record the following transactions: Bee Company: Purchase of bonds on August 1, Year 1. Receipt of first semiannual interest amount on December 31, Year 1. The sale of the bonds on March 1, Year 2.arrow_forward
- 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. $115,000arrow_forwardSuspect Company issued $1,110,000 of 8 percent first mortgage bonds on January 1, 20X1, at 104. The bonds mature in 20 years and pay interest semiannually on January 1 and July 1. Prime Corporation purchased $740,000 of Suspect’s bonds from the original purchaser on December 31, 20X5, for $736,000. Prime owns 70 percent of Suspect’s voting common stock. Required:a. Prepare the worksheet consolidation entry or entries needed to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements for 20X5 b. Prepare the worksheet consolidation entry or entries needed to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements for 20X6.arrow_forwardHow do I journalize the bonds?arrow_forward
- Torres Investments acquired $160,000 of Murphy Corp., 5% bonds at their face amount on October 1, Year 1. The bonds pay interest on October 1 and April 1. On April 1, Year 2, Torres sold $60,000 of Murphy Corp. bonds at 102.Journalize the entries to record the following:a. The initial acquisition of the Murphy Corp. bonds on October 1, Year 1.b. The adjusting entry for three months of accrued interest earned on the Murphy Corp.bonds on December 31, Year 1.c. The receipt of semiannual interest on April 1, Year 2.d. The sale of $60,000 of Murphy Corp. bonds on April 1, Year 2, at 102.arrow_forwardUse this information for Pierce Company to answer the question that follow. On May 1, Pierce Company purchased $60,000 of Stanton Company's 12% bonds at 100 plus accrued interest of $2,400. On June 30, Pierce received its first semiannual interest. On February 1, Pierce sold $50,000 of the bonds at 103 plus accrued interest. What are the total proceeds from the February 1 sale? Oa. $51,500 Ob. $50,000 Oc. $52,400 Od. $52,000 ?arrow_forward7) ABC Company purchased $1,200,000 of 7%, 5-year bonds from XYZ, Inc. on January 1, 2021, with interest payable on July 1 and January 1. The bonds sold for $1,249,896 at an effective interest rate of 6%, and were held as available for sale. Record the entry to purchase the bonds. 2. Prepare the following schedule for the first two periods using the effective interest method of amortization. Date Cash rec’d Interest rev Premium amortization Carrying value 1/1/21 1,249,896 7/1/21 1/1/22 1. At 12/31/21, the bonds had a fair value of $1,250,000. Prepare the journal entry for the fair value adjustment.arrow_forward
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