Exam 5: Intercompany Transactions: Bonds and Leases

Company P owns 80% of Company S. On January 1, 20X9 Company S has outstanding 6% bonds with a face value of $200,000 and an unamortized discount of $3,000, which is being amortized on a straight-line basis over a remaining term of 10 years. On January 1, 20X9, Company P purchased all the bonds for $205,000. The premium also is amortized on a straight-line basis. The net impact of the purchase on the noncontrolling interest as of December 31, 20X9, is ____.

Soap & Pumice: 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. -Refer to Soap & Pumice. How much bond interest expense will appear on the December 31, 20X8, consolidated income statement?

On January 1, 20X1, Porter Company purchased 80% of the common stock of Singer Company for $372,000. On this date Singer had total owners' equity of $440,000. Any excess of cost over book value is due to goodwill. Porter accounts for its investment in Singer using the simple equity method. On January 1, 20X2, Porter held merchandise acquired from Singer for $30,000. During 20X2, Singer sold merchandise to Porter for $90,000, of which $20,000 is held by Porter on December 31, 20X2. Singer's usual gross profit on affiliated sales is 40%. On December 31, 20X2, Porter still owes Singer $10,000 for merchandise acquired in December. On December 31, 20X1, Porter sold $100,000 par value of 10%, 10-year bonds for $102,000. Porter uses the straight-line method of amortization for the premium. The bonds pay interest semiannually on June 30 and December 31. On December 31, 20X2, Singer repurchased $50,000 par value of the bonds, paying $49,100. Straight-line amortization is used. Required: Complete the Figure 5-13 worksheet for consolidated financial statements for the year ended December 31, 20X2. Round all computations to the nearest dollar.

Which of the following statements is true?

Intercompany debt that must be eliminated from consolidated financial statements may result from:

Soap & Pumice: 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. -Refer to Soap & Pumice. How much interest expense will appear on the December 31, 20X9, consolidated income statement?

In years subsequent to the year one member of a consolidated group purchases bonds from outside parties, Consolidated Income Statements:

Sun Company is a 100%-owned subsidiary of Peter Company. On January 1, 20X1, Sun Company has $500,000 of 8% face rate bonds outstanding, with an unamortized discount of $5,000 that is being amortized over a 5 year remaining life to maturity. On that date, Peter Company purchased the bonds for $497,000. The adjustment to the consolidated income of the two companies needed in the consolidation process for 20X2 (the following year) is ____.

Company S is a 100%-owned subsidiary of Company P. On January 1, 20X9, Company S has $100,000 of 8% face rate bonds outstanding. The bonds had 5 years to maturity on January 1, 20X9, and had an unamortized discount of $5,000. On that date, Company P purchased the bonds for $99,000. The net adjustment needed to consolidate retained earnings on December 31, 20X9 is ____.

On January 1, 20X8, Parent Company purchased 90% of the common stock of Subsidiary Company for $450,000. On this date, Subsidiary had common stock, other paid in capital, and retained earnings of $20,000, $130,000, and $200,000, respectively. Any excess of cost over book value is due to goodwill. Parent accounts for the Investment in Subsidiary using the cost method. On January 1, 20X8, Subsidiary sold $100,000 par value of 6%, ten-year bonds for $97,000. The bonds pay interest semi-annually on January 1 and July 1 of each year. On January 1, 20X9, Parent repurchased all of Subsidiary's bonds for $96,400. The bonds are still held on December 31, 20X9. Both companies have correctly recorded all entries relative to bonds and interest, using straight-line amortization for premium or discount. Required: Complete the Figure 5-6 worksheet for consolidated financial statements for the year ended of December 31, 20X9. Round all computations to the nearest dollar.

On an income distribution schedule, any gain or loss resulting from intercompany bonds is charged to

On January 1, 20X8, Parent Company purchased 90% of the common stock of Subsidiary Company for $360,000. On this date, Subsidiary had common stock, other paid in capital, and retained earnings of $20,000, $130,000, and $200,000, respectively. Any excess of cost over book value is due to goodwill. Parent accounts for the Investment in Subsidiary using the simple equity method. On January 1, 20X8, Subsidiary sold $100,000 par value of 6%, ten-year bonds for $97,000. The bonds pay interest semi-annually on January 1 and July 1 of each year. On January 1, 20X9, Parent repurchased all of Subsidiary's bonds for $96,400. The bonds are still held on December 31, 20X9. Both companies have correctly recorded all entries relative to bonds and interest, using straight-line amortization for premium or discount. Required: Complete the Figure 5-7 worksheet for consolidated financial statements for the year ended of December 31, 20X9. Round all computations to the nearest dollar.

In the year when one member of a consolidated group purchases from outside parties the bonds of another affiliate, the consolidated income statement includes:

A subsidiary has outstanding $100,000 of 8% bonds that were issued at face value. The parent purchased all the bonds for $96,000 with 5 years remaining to maturity. How will the parent's use of the effective interest amortization rather than straight-line amortization of the discount affect the consolidated financial statements?