Exam 8: Appendix A: Intercompany Indebtedness

Granite Company issued $200,000 of 10 percent first mortgage bonds on January 1, 20X4, at 105. The bonds mature in 10 years and pay interest semiannually on January 1 and July 1. Mortar Corporation purchased $140,000 of Granite's bonds from the original purchaser on January 1, 20X8, for $122,000. Mortar owns 75 percent of Granite's voting common stock. -Based on the information given above,what amount of gain or loss on bond retirement will be reported in the 20X8 consolidated financial statements?

Light Corporation owns 80 percent of Sound Company's voting shares. On January 1, 20X7, Sound sold bonds with a par value of $300,000 at 95. Light purchased two thirds of the bonds; the remainder was sold to nonaffiliates. The bonds mature in ten years and pay an annual interest rate of 6 percent. Interest is paid semiannually on January 1 and July 1. -Based on the information given above,what amount of interest expense should be reported in the 20X8 consolidated income statement?

Master Corporation owns 85 percent of Servant Corporation's voting shares. On January 1, 20X8, Master Corporation sold $200,000 par value 8 percent bonds to Servant for $245,000. The bonds mature in 10 years and pay interest semiannually on January 1 and July 1. -Based on the information given above,in the preparation of the 20X8 consolidated financial statements,premium on bonds payable will be:

Granite Company issued $200,000 of 10 percent first mortgage bonds on January 1, 20X4, at 105. The bonds mature in 10 years and pay interest semiannually on January 1 and July 1. Mortar Corporation purchased $140,000 of Granite's bonds from the original purchaser on December 31, 20X8, for $125,000. Mortar owns 75 percent of Granite's voting common stock. -Based on the information given above,what amount of premium on bonds payable will be eliminated in the preparation of the 20X8 consolidated financial statements?

Granite Company issued $200,000 of 10 percent first mortgage bonds on January 1, 20X4, at 105. The bonds mature in 10 years and pay interest semiannually on January 1 and July 1. Mortar Corporation purchased $140,000 of Granite's bonds from the original purchaser on December 31, 20X8, for $125,000. Mortar owns 75 percent of Granite's voting common stock. -Based on the information given above,what amount of interest income will be eliminated in the preparation of the 20X9 consolidated financial statements?

Granite Company issued $200,000 of 10 percent first mortgage bonds on January 1, 20X4, at 105. The bonds mature in 10 years and pay interest semiannually on January 1 and July 1. Mortar Corporation purchased $140,000 of Granite's bonds from the original purchaser on January 1, 20X8, for $122,000. Mortar owns 75 percent of Granite's voting common stock. -Based on the information given above,what amount of premium on bonds payable will be eliminated in the preparation of the 20X8 year-end consolidated financial statements?

Moon Corporation issued $300,000 par value 10-year bonds at 107 on January 1, 20X3, which Star Corporation purchased. On July 1, 20X7, Sun Corporation purchased $120,000 face value of Moon bonds from Star. The bonds pay 12 percent interest annually on December 31. The preparation of consolidated financial statements for Moon and Sun at December 31, 20X9, required the following consolidation entry: -Based on the information given above,what amount did Sun pay when it purchased the bonds on July 1,20X7?

Moon Corporation issued $300,000 par value 10-year bonds at 107 on January 1, 20X3, which Star Corporation purchased. On July 1, 20X7, Sun Corporation purchased $120,000 face value of Moon bonds from Star. The bonds pay 12 percent interest annually on December 31. The preparation of consolidated financial statements for Moon and Sun at December 31, 20X9, required the following consolidation entry: -Based on the information given above,what amount of gain or loss on bond retirement is included in the 20X7 consolidated income statement?

ABC, a holder of a $400,000 XYZ Inc. bond, collected the interest due on June 30, 20X8, and then sold the bond to DEF Inc. for $365,000. On that date the bond issuer, XYZ, a 90 percent owner of DEF, had a $450,000 carrying amount for this bond. -Based on the information given above,what was the effect of DEF's purchase of XYZ's bond on the noncontrolling interest amount reported in XYZ's June 30,20X8,consolidated balance sheet?

Hunter Corporation holds 80 percent of the voting shares of Moss Company. On January 1, 20X8, Moss purchased $100,000 par value 12 percent first mortgage bonds of Hunter from Cruse for $115,000. Hunter originally issued the bonds to Cruse on January 1, 20X6, for $110,000. The bonds have an 8-year maturity from the date of issue. Moss' reported net income of $65,000 for 20X8, and Hunter reported income (excluding income from ownership of Moss's stock) of $90,000. -Based on the information given above,what gain or loss on the retirement of bonds should be reported in the 20X8 consolidated income statement?

Hunter Corporation holds 80 percent of the voting shares of Moss Company. On January 1, 20X8, Moss purchased $100,000 par value 12 percent first mortgage bonds of Hunter from Cruse for $115,000. Hunter originally issued the bonds to Cruse on January 1, 20X6, for $110,000. The bonds have an 8-year maturity from the date of issue. Moss' reported net income of $65,000 for 20X8, and Hunter reported income (excluding income from ownership of Moss's stock) of $90,000. -Based on the information given above,what amount of interest income does Moss record for 20X8?

Granite Company issued $200,000 of 10 percent first mortgage bonds on January 1, 20X4, at 105. The bonds mature in 10 years and pay interest semiannually on January 1 and July 1. Mortar Corporation purchased $140,000 of Granite's bonds from the original purchaser on December 31, 20X8, for $125,000. Mortar owns 75 percent of Granite's voting common stock. -Based on the information given above,what amount of interest expense will be eliminated in the preparation of the 20X9 consolidated financial statements?

Which of the following statements is (are)correct? I.The amount assigned to the noncontrolling interest may be affected by a constructive retirement of bonds. II.A constructive retirement of bonds normally results in an extraordinary gain or loss. III.In constructive retirement,the entity would still consider the bonds outstanding,even though they are treated as if they were retired in preparing consolidated financial statements.

Granite Company issued $200,000 of 10 percent first mortgage bonds on January 1, 20X4, at 105. The bonds mature in 10 years and pay interest semiannually on January 1 and July 1. Mortar Corporation purchased $140,000 of Granite's bonds from the original purchaser on December 31, 20X8, for $125,000. Mortar owns 75 percent of Granite's voting common stock. -Based on the information given above,what amount of gain or loss on bond retirement will be reported in the 20X8 consolidated financial statements?

A loss on the constructive retirement of a parent's bonds by a subsidiary is effectively recognized in the individual accounting records of the parent and its subsidiary: I.at the date of constructive retirement. II.over the remaining term of the bonds.

Hunter Corporation holds 80 percent of the voting shares of Moss Company. On January 1, 20X8, Moss purchased $100,000 par value 12 percent first mortgage bonds of Hunter from Cruse for $115,000. Hunter originally issued the bonds to Cruse on January 1, 20X6, for $110,000. The bonds have an 8-year maturity from the date of issue. Moss' reported net income of $65,000 for 20X8, and Hunter reported income (excluding income from ownership of Moss's stock) of $90,000. -Based on the information given above,what amount of consolidated net income should be reported for 20X8?

Cutler Company owns 80 percent of the common stock of Marina Inc.Cutler acquires some of Marina's bonds from an unrelated party for less than the carrying value on Marina's books and holds them as a long-term investment.For consolidated reporting purposes,how is the acquisition of Marina's bonds treated?

Granite Company issued $200,000 of 10 percent first mortgage bonds on January 1, 20X4, at 105. The bonds mature in 10 years and pay interest semiannually on January 1 and July 1. Mortar Corporation purchased $140,000 of Granite's bonds from the original purchaser on January 1, 20X8, for $122,000. Mortar owns 75 percent of Granite's voting common stock. -Based on the information given above,what amount of interest income will be eliminated in the preparation of the 20X9 consolidated financial statements?

Dundee Company issued $1,000,000 par value 10-year bonds at 102 on January 1,20X5,which Mega Corporation purchased.The coupon rate on the bonds is 9 percent.Interest payments are made semiannually on July 1 and January 1.On July 1,20X8,Perth Company purchased $500,000 par value of the bonds from Mega for $492,200.Perth owns 65 percent of Dundee's voting shares. Required: a.What amount of gain or loss will be reported in Dundee's 20X8 income statement on the retirement of bonds? b.Will a gain or loss be reported in the 20X8 consolidated financial statements for Perth for the constructive retirement of bonds? What amount will be reported? c.How much will Perth's purchase of the bonds change consolidated net income for 20X8? d.Prepare the worksheet consolidation entry or entries needed to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements at December 31,20X8. e.Prepare the worksheet consolidation entry or entries needed to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements at December 31,20X9. Problem 37 (continued):

Light Corporation owns 80 percent of Sound Company's voting shares. On January 1, 20X7, Sound sold bonds with a par value of $300,000 at 95. Light purchased two thirds of the bonds; the remainder was sold to nonaffiliates. The bonds mature in ten years and pay an annual interest rate of 6 percent. Interest is paid semiannually on January 1 and July 1. -Based on the information given above,what amount of interest receivable will be recorded by Light Corporation on December 31,20X8,in its separate financial statements?