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AdvancedAccounting,11e(Beams/Anthony/Bettinghaus/Smith)Chapter7IntercompanyProfitTransactions-BondsMultipleChoiceQuestions1)Ifthepricepaidbyaparentcompanytoacquirethedebtofasubsidiaryisgreaterthanthebookvalueoftheliability,a________occurs.A)realizedlossontheretirementofdebtfromtheviewpointofthesubsidiaryB)realizedgainontheretirementofdebtfromtheviewpointofthesubsidiaryC)constructivelossontheretirementofdebtfromtheviewpointoftheconsolidatedentityD)constructivegainontheretirementofdebtfromtheviewpointoftheconsolidatedentityAnswer:CObjective:LO1Difficulty:Easy2)Ifanaffiliatepurchasesbondsintheopenmarket,thebookvalueoftheintercompanybondliabilityatthetimeofpurchaseisA)alwaysassignedtotheparentcompanybecauseithascontrol.B)theparvalueofthebondslesstheunamortizeddiscountorplustheunamortizedpremium.C)parvalue.D)theparvalueofthebondsplustheunamortizeddiscountorlesstheunamortizedpremium.Answer:BObjective:LO1Difficulty:Easy3)Bondsissuedbyacompanyremainontheirbooksasaliability,butareconsideredconstructivelyretiredwhenA)thecompanyborrowsmoneyfromunaffiliatedentitiestore-purchaseitsownbondsatagain.B)Thecompanyborrowsmoneyfromanaffiliatetore-purchaseitsownbondsatagain.C)Thecompany'sparentorsubsidiarypurchasesthebondsfromoutsideentities.D)Thecompanyborrowsmoneyfromanaffiliatetorepurchaseitsownbondsatagainorataloss.Answer:CObjective:LO1Difficulty:Easy
Usethefollowinginformationtoanswerthequestion(s)below.PascalianCompanyownsa90%interestinSappCompany.OnJanuary1,2023,Pascalianhad$300,000,6%bondsoutstandingwithanunamortizedpremiumof$9,000.ThebondsmatureonDecember31,2023.Sappacquiredone-thirdofPascalian'sbondsintheopenmarketfor$97,000onJanuary1,2023.Bothcompaniesusestraight-lineamortizationofbonddiscounts/premiums.InterestispaidonDecember31.OnDecember31,2023,thebooksofthetwoaffiliatesheldthefollowingbalances:Pascalian'sbooks6%bondspayable $300,000Premiumonbonds 7,200Interestexpenseﻩ16,200Sapp'sbooksInvestmentinPascalianbondsﻩ$97,600Interestincomeﻩ6,6004)ThegainfromthebondpurchasethatappearedontheDecember31,2023consolidatedincomestatementwasA)$4,320.B)$4,800.C)$5,400.D)$6,000.Answer:DExplanation:D)BookvalueofPascalian'sbondsacquiredbySappequals1/3times($300,000+$9,000) $103,000Less:CostofacquiringPascalianbondsﻩ(97,000)Constructivegainonbondsﻩ$6,000Objective:LO2Difficulty:Moderate5)ConsolidatedInterestExpenseandconsolidatedInterestIncome,respectively,thatappearedontheconsolidatedincomestatementfortheyearendedDecember31,2023wasA)$10,800and$0.B)$10,800and$6,600.C)$0and$0.D)$16,200and$6,600.Answer:AExplanation:A)Consolidatedinterestexpense=$16,200×2/3ﻩ$10,800Objective:LO2Difficulty:Moderateﻬ6)PrussiaCorporationowns80%thevotingstockofStadCorporation.OnJanuary1,2023,Prussiapaid$391,000cashfor$400,000parofStad's10%$1,000,000parvalueoutstandingbonds,dueonApril1,2023.Stad'sbondshadabookvalueof$1,045,000onJanuary1,2023.Straight-lineamortizationisused.Thegainorlossontheconstructiveretirementof$400,000ofStadbondsonJanuary1,2023wasreportedinthe2023consolidatedincomestatementintheamountofA)$14,000.B)$21,600.C)$23,000.D)$27,000.Answer:DObjective:LO2Difficulty:ModerateUsethefollowinginformationtoanswerthequestion(s)below.PfadtInc.had$600,000parof8%bondspayableoutstandingonJanuary1,2023dueJanuary1,2023withanunamortizeddiscountof$12,000.Senatisa90%-ownedsubsidiaryofPfadt.OnJanuary2,2023,SenatCorporationpurchased$150,000parvalueofPfadt'soutstandingbondsfor$152,000.ThebondshaveinterestpaymentdatesofJanuary1andJuly1.Straight-lineamortizationisused.7)Withrespecttothebondpurchase,theconsolidatedincomestatementofPfadtCorporationandSubsidiaryfor2023showedagainorlossofA)$4,500.B)$5,000.C)$10,800.D)$12,000.Answer:BExplanation:B)[($588,000×0.25)-$152,000]Objective:LO2Difficulty:Moderate8)BondInterestReceivablefor2023ofPfadt'sbondsonSenat'sbookswasA)$5,400.B)$6,000.C)$10,800.D)$12,000.Answer:BExplanation:B)[$150,000×8%×1/2]Objective:LO2Difficulty:Moderate
9)BondsPayableappearedintheDecember31,2023consolidatedbalancesheetofPfadtCorporationandSubsidiaryintheamountofA)$398,925.B)$441,000.C)$443,250.D)$450,000.Answer:CExplanation:C)[$591,000×75%]Objective:LO2Difficulty:ModerateUsethefollowinginformationtoanswerthequestion(s)below.PlentyCorporationissuedsixthousand,$1,000par,6%bondsonJanuary1,2023,atpar.InterestispaidonJanuary1andJuly1ofeachyear;thebondsmatureonJanuary1,2023.OnJanuary2,2023,ScrawnCorporation,a75%-ownedsubsidiaryofPlenty,purchased3,000ofthebondsontheopenmarketat102.50.Plenty'sseparatenetincomefor2023includedtheannualinterestexpenseforall3,000bonds.Scrawn'sseparatenetincomefor2023was$400,000,whichincludedthebondinterestreceivedonJuly1aswellastheaccrualofbondinterestrevenueearnedonDecember31.Bothcompaniesusestraight-lineamortizationofbonddiscounts/premiums.10)Whatwastheamountofgainor(loss)fromtheintercompanypurchaseofPlenty'sbondsonJanuary2,2023?A)$(56,250)B)$(75,000)C)$75,000D)$56,250Answer:BExplanation:B)Totalbookvalueacquired=$6,000,000×50% $3,000,000Purchaseprice3,000×$1,025ﻩ3,075,000Lossonconstructiveretirement $75,000Objective:LO2Difficulty:Moderateﻬ11)Ifthebondswereoriginallyissuedat106,and80%ofthemwerepurchasedbyScrawnonJanuary2,2023at98,thegainor(loss)fromtheintercompanypurchasewasA)$(384,000).B)$(211,200).C)$211,200.D)$384,000.Answer:CExplanation:C)BookvalueatJanuary2,2023equals$6,360,000minus$216,000=ﻩ$6,144,000Percentageofbondsacquired 80%Equalsbookvalueacquired 4,915,200Purchaseprice4,800bonds×$980=ﻩ4,704,000Gainonconstructiveretirement=ﻩ$211,200Objective:LO2Difficulty:Moderate12)Ifthebondswereoriginallyissuedat103,and70%ofthemwerepurchasedonJanuary2,2023at104,theconstructivegainor(loss)onthepurchasewasA)$(142,800).B)$(42,000).C)$42,000.D)$142,800.Answer:AExplanation:A)BookvalueatJanuary2,2023equals$6,180,000minus$144,000ﻩ$6,036,000Percentageofbondsacquiredﻩ70%Equalsbookvalueacquired 4,225,200Purchaseprice4,200bonds×$1,040 4,368,000Lossonconstructiveretirement $142,800Objective:LO2Difficulty:Moderate13)Usingtheoriginalinformation,theamountofconsolidatedInterestExpensefor2023wasA)$135,000.B)$180,000.C)$270,000.D)$360,000.Answer:BExplanation:B)($6,000,000-$3,000,000)×6%Objective:LO2Difficulty:Moderate
14)Usingtheoriginalinformation,thebalancesfortheBondsPayableandBondInterestPayableaccounts,respectively,ontheconsolidatedbalancesheetforDecember31,2023wereA)$3,000,000and$90,000.B)$3,000,000and$180,000.C)$6,000,000and$90,000.D)$6,000,000and$180,000.Answer:AExplanation:A)Bondspayable$6,000,000minusbondsheldbyScrawnof$3,000,000.InterestaccruedonDecember31,2023willbetheinterestonbondsheldbynon-affiliatesor$3,000,000×6%×1/2yearObjective:LO2,3Difficulty:Moderate15)Usingtheoriginalinformation,theeliminationentriesontheconsolidationworkingpaperspreparedonDecember31,2023includedatleastA)debittoBondInterestExpensefor$360,000.B)credittoBondInterestExpensefor$180,000andadebittoBondInterestPayablefor$90,000.C)credittoBondInterestReceivablefor$180,000.D)debittoBondInterestRevenuefor$360,000.Answer:BObjective:LO2Difficulty:Moderate16)Noconstructivegainorlossarisesfromthepurchaseofanaffiliate'sbondsiftheA)affiliateisa100%-ownedsubsidiary.B)bondsarepurchasedatbookvalue.C)bondsarepurchasedwitharm's-lengthbargainingfromoutsideentities.D)gainorlosscannotbereasonablyestimated.Answer:BObjective:LO1Difficulty:Easy17)Thereareseveraltheoriesforallocatingconstructivegainsorlossesbetweenpurchasingandissuingaffiliates.TheAgencyTheoryA)doessobasedontheparvalueofthebondspurchased.B)assignstheentireconstructivegainorlosstotheparentbasedontheircontrolofthedecisiontopurchasethebonds.C)assignstheentireconstructivegainorlosstothesubsidiarybasedontheneedtohavethenoncontrollinginterestshareintheretirementofthedebt.D)assignstheentireconstructivegainorlosstowhichevercompanyissuedthebonds.Answer:DObjective:LO1Difficulty:Easyﻬ18)PickleIncorporatedacquireda$10,000bondoriginallyissuedbyits80%-ownedsubsidiaryonJanuary2,2023.Thebondwasissuedinaprioryearfor$11,250,maturesJanuary1,2023,andpays9%interestatDecember31.Thebond'sbookvalueatJanuary2,2023is$10,625,andPicklepaid$9,500topurchaseit.Straight-lineamortizationisusedbybothcompanies.Howmuchinterestincomeshouldbeeliminatedin2023?A)$720B)$800C)$900D)$1,000Answer:DExplanation:D)$9,500-$10,000=discounttoamortizeasinterestexpenseover5years,or$100peryear+$900paidbyissuer.Objective:LO2,3Difficulty:ModerateUsethefollowinginformationtoanswerthequestion(s)below.PoeCorporationownsan80%interestinSeriCompanyacquiredatbookvalueseveralyearsago.OnJanuary2,2023,Seripurchased$100,000parofPoe'soutstanding10%bondsfor$103,000.ThebondswereissuedatparandmatureonJanuary1,2023.Straight-lineamortizationisused.SeparateincomesofPoeandSerifor2023are$350,000and$120,000,respectively.PoeusestheequitymethodtoaccountfortheinvestmentinSeri.19)Controllinginterestshareofconsolidatednetincomefor2023wasA)$443,600.B)$444,000.C)$444,400.D)$448,000.Answer:BExplanation:B)Poe'sseparateincome $350,000IncomefromSeri($120,000×80%)ﻩ96,000Less:LossonconstructiveretirementofPoebonds (3,000)Plus:Piecemealrecognitionoftheconstructiveloss($3,000/3years) 1,000Controllinginterestshare $444,000Objective:LO4Difficulty:Moderate20)Noncontrollinginterestsharefor2023wasA)$23,000.B)$23,600.C)$24,000.D)$24,400.Answer:CExplanation:C)SincePoeistheissuingentity,thegainorlossisnotallocatedtothenoncontrollinginterest.Thenoncontrollinginterestshareis($120,000×20%)=$24,000.Objective:LO4Difficulty:ModerateExercises1)SeparatecompanyandconsolidatedincomestatementsforPittaandSojournCorporationsfortheyearendedDecember31,2023aresummarizedasfollows:ﻩPittaﻩSoujourn ConsolidatedSalesRevenue $500,000 $100,000ﻩ$600,000IncomefromSojourn 19,900 ﻩBondinterestincomeﻩﻩ6,000 Gainonbondretirement ﻩ3,000Totalrevenuesﻩ519,900 106,000 603,000 ﻩCostofsales $280,000ﻩ$50,000 $330,000Bondinterestexpense 9,000 3,600Otherexpenses 120,900ﻩ31,000 151,900Totalexpensesﻩ409,900 81,000ﻩ485,500Consolidatednetincomeﻩ 117,500Noncontrollinginterestshareﻩ 7,500SeparatenetincomeandControl.interestshareinconsolidatednetincome $110,000ﻩ$25,000ﻩ$110,000Theinterestincomeandexpenseeliminationsrelatetoa$100,000,9%bondissuethatwasissuedatparvalueandmaturesonJanuary1,2023.OnJanuary2,2023,aportionofthebondswaspurchasedandconstructivelyretired.Required:Answerthefollowingquestions.1.ﻩWhichcompanyistheissuingaffiliateofthebondspayable?2. Whatisthegainorlossfromtheconstructiveretirementofthebondspayablethatisreportedontheconsolidatedincomestatementfor2023?3. WhatportionofthebondspayableisheldbynonaffiliatesatDecember31,2023?4. IsSojournawholly-ownedsubsidiary?Ifnot,whatpercentagedoesPittaown?5. Doesthepurchasingaffiliateusestraight-lineoreffectiveinterestamortization?6. ExplainthecalculationofPitta's$19,900incomefromSojourn.
Answer:1. Pittaistheissuingaffiliate.2.ﻩEffectonconsolidatednetincome: Gainonconstructiveretirementofbondsﻩ$3,0003. PercentofbondsheldbynonaffiliatesatDecember31,2023ﻩis40%,computedas$3,600consolidatedinterestexpensedividedby$9,000interestexpenseofPitta.4. Sojournispartiallyownedasevidencedbythenoncontrollinginterestshare.Theownershippercentageis70%($7,500noncontrollinginterestsharedividedby$25,000incomeofSojourn=30%noncontrollinginterest.)5. Straight-lineamortization $100,000par×60%purchased $60,000 Purchaseprice5yearsbeforematurity 57,000ﻩGainﻩ3,000 Nominalinterest($60,000×9%)ﻩ$5,400ﻩDiscountamortization($3,000/5years)ﻩ600ﻩBondinterestincome $6,0006. Pitta'sincomefromSojourn ShareofSojourn'sreportedincome ($25,000×70%)= $17,500 Add:Constructivegain 3,000ﻩLess:Piecemealrecognitionofconstructive gain (600)ﻩIncomefromSojournﻩ$19,900Objective:LO1,2,4Difficulty:Moderateﻬ2)PlattsIncorporatedpurchased80%ofScarabCompanyseveralyearsagowhenthefairvalueequaledthebookvalue.OnJanuary1,2023,Scarabhas$100,000of8%bondsthatwereissuedatfacevalueandhavefiveyearstomaturity.InterestispaidannuallyonDecember31.BothPlattsandScarabwouldusethestraight-linemethodtoamortizeanypremiumordiscountincurredintheissuanceorpurchaseofbonds.OnJanuary1,2023,PlattspurchasedallofScarab'sbondsfor$96,000.Required:1.ﻩPreparethejournalentriesin2023thatwouldberecordedbyPlattsandScarabontheirseparatefinancialrecords.2. PreparetheconsolidatingworkingpaperentriesrequiredfortheyearendingDecember31,2023.Answer:Requirement1:Plattsentries:1/1/11 Investmentinbondsﻩ$96,000ﻩﻩCash ﻩ$96,00012/31/11 Cash 8,000ﻩ Interestincome ﻩ8,000 Investmentinbonds 1,000 ﻩInterestincomeﻩ 1,000Scarabentries:12/31/11ﻩInterestexpense 8,000 ﻩCash 8,000Requirement2:Consolidatingentries:12/31/11ﻩBondspayable 100,000 ﻩInvestmentinbonds 97,000 ﻩGainonretirementofdebt ﻩ3,000 Interestincome 9,000 Interestexpenseﻩﻩ8,000 Gainonretirementofdebt 1,000Objective:LO2,3Difficulty:Moderate
3)PakaCorporationownsan80%interestinSandraCompany.PakaacquiredSandra'sbondsonJanuary2,2023.ThefollowinginformationisfromtheadjustedtrialbalancesatDecember31,2023,atwhichtimethebondshavethreeyearstomaturity.ThebondshaveinterestpaymentdatesofJanuary1andJuly1.Straight-lineamortizationisusedbybothcompanies. PakaﻩSandraInvestmentinSandraBonds,$100,000par 98,5007%Bondspayable,$200,000 ﻩ200,000Bondpremium ﻩ6,000Interestexpense ﻩ12,000Interestreceivable 7,000Interestincome 7,500Interestpayableﻩ 7,000Required:PreparethenecessaryconsolidationworkingpaperentriesonDecember31,2023withrespecttotheintercompanybonds.Answer:2023 DebitﻩCredit12/31ﻩBondInterestPayable 7,000 ﻩBondInterestReceivableﻩﻩ7,00012/31ﻩBondsPayableﻩ100,000ﻩInterestIncome 7,500 Bondpremiumﻩ3,000ﻩﻩInterestExpense(50%owned)ﻩﻩ6,000 InvestmentinSandra'sBonds 98,500 ﻩGainonretirementofbonds ﻩ6,000 SupportingComputations:ﻩCostofbondstoPaka($98,500-$500) $98,000 Bookvalueacquired1/1/2023whereﻩ$2,000peryearisamortized ($200,000+$8,000)×50%= ﻩ104,000ﻩGainonconstructivebondretirementﻩ $6,000Objective:LO2,3Difficulty:Moderateﻬ4)PheasantCorporationowns80%ofSalCorporation'soutstandingcommonstockthatwaspurchasedatbookvalueequaltofairvalueonJanuary1,2023.Additionalinformation:1. Pheasantsoldinventoryitemsthatcost$3,000toSalduring2023for$6,000.One-halfofthismerchandisewasinventoriedbySalatyear-end.AtDecember31,2023,SalowedPheasant$2,000onaccountfromtheinventorysales.NootherintercompanysalesofinventoryhaveoccurredsincePheasantacquireditsinterestinSal.2. Pheasantsoldequipmentwithabookvalueof$5,000anda5-yearusefullifetoSalfor$10,000onDecember31,2023.TheequipmentremainsinusebySalandisdepreciatedbythestraight-linemethod.Theequipmenthasnosalvagevalue.3.ﻩOnJanuary2,2023,Salpaid$10,800for$10,000parvalueofPheasant's10-year,10%bonds.Thesebondswereoriginallysoldatparvalue,andhaveinterestpaymentdatesofJanuary1andJuly1,andmatureonJanuary1,2023.Straight-lineamortizationhasbeenappliedbySaltothePheasantbondinvestment.4. PheasantusestheequitymethodinaccountingforitsinvestmentinSal.
Required:CompletetheworkingpaperstoconsolidatethefinancialstatementsofPheasantCorporationandSalfortheyearendedDecember31,2023.ﻬAnswer:Objective:LO2,3Difficulty:Difficult
5)Phaunapaid$120,000forits80%interestinSchrubonJanuary1,2023whenSchrubhad$150,000oftotalstockholders'equity.OnJanuary1,2023,Phaunapurchased$50,000ofSchrubCorporation's8%bondsfor$48,000.Atthattime,$100,000ofbondshadbeenissuedbySchrub,andunamortizedpremiumwas$2,000.ThebondspayinterestonJune30andDecember31andmatureonDecember31,2023.BothPhaunaandSchrubusestraight-lineamortization.PhaunausestheequitymethodofaccountingforitsinvestmentinSchrub.Required:Prepareeliminating/adjustingentriesforthebondsontheconsolidatingworkpapersfortheyearendedDecember31,2023.Answer:12/31/2023Interestincome(8%×$50,000)+($2,000/5)4,400 Interestexpense(8%×$50,000)-($1,000/5) ﻩ3,800ﻩGainonretirementofbondsﻩﻩ600Bondspayableﻩ50,000Premiumonbondspayableﻩ800 Bondinvestment ﻩ48,400ﻩGainonretirementofbondsﻩﻩ2,400Premiumonbondspayable:$1,000-$1,000/5=$800Bondinvestment:$48,000+$2,000/5=$48,400 Supportingcomputations:ﻩBookvalueofbondsﻩ($102,000×50%) $51,000ﻩCostofacquiring$50,000par (48,000)ﻩConstructivegain 3,000 Piecemealrecognitionofgain (600)ﻩUnrecognizedatDecember31,2023 $2,400Objective:LO2,3Difficulty:Difficult
6)PelamiCorporationownsa90%interestinSunbirdCorporation.AtDecember31,2023,Sunbirdhad$3,000,000ofparvalue6%bondsoutstandingwithanunamortizedpremiumof$30,000.ThebondshaveinterestpaymentdatesofJanuary1andJuly1andmatureonJanuary1,2023.OnJanuary2,2023,Pelamipurchased$1,200,000parvalueofSunbird'soutstandingbondsfor$1,210,000.Assumestraight-lineamortization.Required:PreparethenecessaryconsolidationworkingpaperentrieswithrespecttotheintercompanybondsfortheyearendingDecember31,2023.Answer:2023ﻩﻩ Debit Credit12/31ﻩBondInterestPayable 36,000 BondInterestReceivable ﻩ36,00012/31ﻩPremiumonBondsPayable 9,000 BondsPayableﻩ1,200,000 InterestRevenueﻩ69,500ﻩﻩInterestExpenseﻩ 69,000ﻩ InvestmentinSunbirdBondsﻩ 1,207,500ﻩ GainonRetirementofBondsﻩ 2,000 SupportingComputations:ﻩCostofbondstoPelami $1,210,000 Bookvalueacquiredﻩ($3,000,000+$30,000)×40%=ﻩﻩ1,212,000 Gainonconstructivebondretirementﻩ $2,000 4yearsremainingﻩPremiumonBondPayableﻩ $30,000x3/4×40% =ﻩ$9,000 ﻩInterestExpense $1,200,000×6%ﻩ=ﻩ$72,000ﻩLess:$30,000×1/4×40%ﻩ= $3,000 ﻩﻩﻩ$69,000 InterestRevenue $72,000-($10,000×1/4)ﻩ=ﻩ$69,500Objective:LO2,3Difficulty:Moderateﻬ7)Spottisa75%-ownedsubsidiaryofPenthal.OnJanuary1,2023,Spottissued$900,000of$1,000faceamount8%bondsatpar.ThebondshaveinterestpaymentsonJanuary1andJuly1ofeachyearandmatureonJanuary1,2023.OnJuly2,2023,Penthalpurchasedall900bondsontheopenmarketfor$1,020perbond.Bothcompaniesusestraight-lineamortization.Required:Withrespecttothebonds,useGeneralJournalformatto:1. Recordthe2023journalentriesfromJuly1toDecember31onSpott'sbooks.2. Recordthe2023journalentriesfromJuly1toDecember31onPenthal'sbooks.3.ﻩRecordtheeliminationentriesfortheconsolidationworkingpapersfortheyearendingDecember31,2023.Answer:Requirement1Date2023ﻩAccountName DebitﻩCreditSpott'sbooksJul01 BondInterestExpense 36,000 Cash($900,000×8%×½) ﻩ36,000Dec31ﻩBondInterestExpenseﻩ36,000ﻩ BondInterestPayableﻩ 36,000Requirement2Penthal'sbooksJul02 InvestmentinSpottBondsﻩ918,000 Cashﻩ 918,000Dec31 BondInterestReceivable 36,000ﻩﻩBondInterestRevenue 32,400ﻩﻩInvestmentinSpottBondsﻩﻩ3,600Requirement3:ConsolidatedWorkingPapersDec31 BondInterestPayableﻩ36,000ﻩ BondInterestReceivable ﻩ36,000Dec31ﻩBondsPayableﻩ900,000 LossonBondsﻩ18,000 BondInterestRevenueﻩ32,400 BondInterestExpense ﻩ36,000ﻩ InvestmentinSpottBonds ﻩ914,400InterestRevenue:($900,000×8%×1/2)-($18,000premium/5periods)=$32,400Objective:LO2,3Difficulty:Moderateﻬ8)SnackleInc.isa90%-ownedsubsidiaryofPashaCorp.OnJanuary1,2023,Snackleissued$400,000of$1,000faceamount8%bondsat$964perbond.InterestispaidonJanuary1andJuly1ofeachyearandcoverstheprecedingsixmonths.OnJuly2,2023,Pashapurchasedall400bondsontheopenmarketfor$1,030perbond.ThebondsmatureonDecember31,2023.Bothcompaniesusestraight-lineamortization.Required:Withrespecttothebonds,useGeneralJournalformatto:1.ﻩRecordthe2023journalentriesfromJuly1toDecember31onPasha'sbooks.2. Recordthe2023journalentriesfromJuly1toDecember31onSnackle'sbooks.3.ﻩRecordtheeliminationentriesfortheconsolidationworkingpapersfortheyearendingDecember31,2023.Answer:Date2023ﻩAccountName Debit CreditPasha'sbooksJul02 InvestmentinSnackleBondsﻩ412,000 Cash 412,000ﻩﻩ Dec31ﻩBondInterestReceivableﻩ16,000 ﻩﻩBondInterestRevenue 12,000 InvestmentinSnackleBonds ﻩ4,000ﻩ Snackle'sbooksJul01 BondInterestExpenseﻩ18,400 ﻩCash 16,000 ﻩDiscountonBondsPayable ﻩ2,400 ﻩ Dec31ﻩBondInterestExpenseﻩ18,400 ﻩBondInterestPayable 16,000ﻩﻩDiscountonBondsPayable 2,400ConsolidatedWorkingPapersDec31 BondInterestPayable 16,000 ﻩﻩBondInterestReceivableﻩﻩ16,000ﻩ ﻩDec31ﻩBondsPayableﻩ400,000ﻩﻩLossonBondsﻩ19,200ﻩ BondInterestRevenue 12,000ﻩ BondInterestExpenseﻩ 18,400ﻩﻩDiscountonBondsPayableﻩ 4,800ﻩﻩInvestmentinSnackleBonds 408,000(Bookvalueofbonds$392,800-purchasecost$412,000=$19,200loss)Objective:LO2,3Difficulty:Moderateﻬ9)PopcornCorporationowns90%oftheoutstandingvotingcommonstockofSaltyCorporation.OnJanuary1,2023,Saltyissued$1,000,000faceamountof12%,$1,000bondspayableat119.20.ThebondspayinterestonJanuary1andJuly1ofeachyearandmatureonJanuary1,2023.OnJuly2,2023,Popcornpurchasedalloftheoutstandingbondsatapriceof107.50.Bothcompaniesusestraight-lineamortization.Required:1. PreparethejournalentriesforJuly1,2023throughDecember31,2023forPopcornCorporation.2..ﻩPreparethejournalentriesforJuly1,2023throughDecember31,2023forSaltyCorporation.3.ﻩPreparetheeliminationentriesnecessaryontheconsolidatingworkingpapersfortheyearendedDecember31,2023.Answer:Requirement1July2,2023:Bondinvestmentﻩ1,075,000ﻩCash 1,075,000December31,2023:Interestreceivable 60,000ﻩInterestrevenueﻩ 60,000($1,000,000×12%×1/2)Interestrevenue 15,000 Bondinvestmentﻩﻩ15,000($75,000/5)Requirement2July1,2023:Interestexpense 60,000 Cash ﻩ60,000Premiumonbondspayableﻩ12,000ﻩInterestexpense 12,000December31,2023:Interestreceivableﻩ60,000 Interestrevenueﻩ 60,000($1,000,000×12%×1/2)IPremiumonbondspayableﻩ12,000 Interestexpense 12,000
Requirement3:December31,2023:Bondspayable 1,000,000Premiumonbondspayable 48,000Lossonretirementofbondsﻩ12,000 Bondinvestmentﻩ 1,060,000Bondinvestment:($1,075,000-$15,000)Lossonretirementofbonds 3,000Interestrevenu 45,000 Interestexpense ﻩ48,000Interestpayableﻩ60,000 Interestreceivable 60,000July2,2023Paid $1,075,000Bookvalueofbondsﻩ1,060,000[$1,000,000+($12,000×5)]Lossonretirementﻩ$15,000Objective:LO2,3Difficulty:Moderateﻬ10)PeterCorporationownsa70%interestinSundownCorporationacquiredseveralyearsagoatapriceequaltobookvalueandfairvalue.OnDecember31,2023,Sundownhad$300,000parof6%bondsoutstandingwithanunamortizedpremiumof$30,000.ThebondsmatureinfiveyearsandpayinterestonJanuary1andJuly1.OnJanuary2,2023,Peteracquiredone-thirdofSundown'sbondsfor$117,000.PeterandSundownusestraight-lineamortization.Sundownreportsnetincomeof$250,000for2023.Peterusestheequitymethodtoaccountfortheinvestment.Required:1.ﻩCalculatePeter'sincomefromSundownfor2023.2. Calculatethenoncontrollinginterestsharefor2023.Answer:Preliminarycomputations:Bookvalueofbonds$330,000×1/3= $110,000Costofbondsﻩ117,000Lossonconstructiveretirement $7,000Requirement1:IncomefromSundown:ShareofSundown'sincome($250,000×70%)ﻩ$175,000Less:Constructiveloss($7,000×70%) (4,900)Plus:Piecemealrecognitionofloss($7,000/5years)×70%ﻩ980IncomefromSundown $171,080Requirement2:Noncontrollinginterestshare:Sundown'sreportedincome $250,000Less:Constructivelossonbonds (7,000)Plus:Piecemealrecognitionofloss 1,400Equals:Adjustedreportedincome $244,400Noncontrollingpercentage 30%Noncontrollinginterestshareﻩ$73,320Objective:LO3,4Difficulty:Moderateﻬ11)PongoCompanyhas$2,000,000of6%bondsoutstandingonDecember31,2023withunamortizedpremiumof$60,000.ThesebondspayinterestsemiannuallyonJanuary1andJuly1andmatureonJanuary1,2023.Straight-lineamortizationisused.SyringInc.,90%-ownedsubsidiaryofPongo,buys$1,000,000parvalueofPongo'soutstandingbondsinthemarketfor$980,000onJanuary2,2023.Thereisonlyoneissueofoutstandingbondsoftheaffiliatedcompaniesandtheyhaveconsolidatedfinancialstatements.Fortheyear2023,Pongohasincomefromitsseparateoperations(excludinginvestmentincome)of$3,000,000andSyringreportsnetincomeof$200,000.Pongousestheequitymethodtoaccountfortheinvestment.Required:Determinethefollowing:1.ﻩNoncontrollinginterestsharefor2023.2.ﻩControllingshareofconsolidatednetincomeforPongoCompanyandsubsidiaryfor2023.Answer:Requirement1Noncontrollinginterestshare($200,000×10%)
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