Exam 21: Intercompany Indebtednessfully Adjusted Equity Method Using Straight-Line Interest Amortization

Spice 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.Pumpkin Corporation purchased $140,000 of Spice's bonds from the original purchaser on December 31,20X8,for $125,000.Pumpkin owns 75 percent of Spice'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?

Paper Corporation holds 80 percent of the voting shares of Scissor Company.On January 1,20X8,Scissor purchased $100,000 par value 12 percent first mortgage bonds of Paper from Cruse for $115,000.Paper 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.Scissor's reported net income of $65,000 for 20X8,and Paper reported income (excluding income from ownership of Scissor's stock)of $90,000. -Based on the information given above,what amount of interest income does Scissor record for 20X8?

Portuguese owns 80 percent of the common stock of Spanish Company.Portuguese also purchases some of Spanish's bonds directly from Spanish and holds the bonds as a long-term investment.How is the acquisition of the bonds treated for consolidated reporting purposes?

A subsidiary issues bonds.The parent can then acquire the bonds either directly from the subsidiary or from a nonaffiliate that had originally acquired the subsidiary's bonds. Required: a)Discuss the parent's accounting as it relates to the preparation of consolidated financial statements,for their acquisition of the bonds: 1.from the nonaffiliate. 2.directly from the subsidiary. b)Why does it matter who the bonds are acquired from?

Spice 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.Pumpkin Corporation purchased $140,000 of Spice's bonds from the original purchaser on January 1,20X8,for $122,000.Pumpkin owns 75 percent of Spice'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?

Spice 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.Pumpkin Corporation purchased $140,000 of Spice's bonds from the original purchaser on December 31,20X8,for $125,000.Pumpkin owns 75 percent of Spice'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?

Spice 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.Pumpkin Corporation purchased $140,000 of Spice's bonds from the original purchaser on January 1,20X8,for $122,000.Pumpkin owns 75 percent of Spice'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?

Spice 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.Pumpkin Corporation purchased $140,000 of Spice's bonds from the original purchaser on December 31,20X8,for $125,000.Pumpkin owns 75 percent of Spice'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?

Spice 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.Pumpkin Corporation purchased $140,000 of Spice's bonds from the original purchaser on January 1,20X8,for $122,000.Pumpkin owns 75 percent of Spice'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?

Pancake Corporation owns 85 percent of Syrup Corporation's voting shares.On January 1,20X8,Pancake Corporation sold $200,000 par value 8 percent bonds to Syrup 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:

Spice 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.Pumpkin Corporation purchased $140,000 of Spice's bonds from the original purchaser on December 31,20X8,for $125,000.Pumpkin owns 75 percent of Spice'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 20X9 consolidated financial statements?

Paper Corporation holds 80 percent of the voting shares of Scissor Company.On January 1,20X8,Scissor purchased $100,000 par value 12 percent first mortgage bonds of Paper from Cruse for $115,000.Paper 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.Scissor's reported net income of $65,000 for 20X8,and Paper reported income (excluding income from ownership of Scissor'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?

Spice 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.Pumpkin Corporation purchased $140,000 of Spice's bonds from the original purchaser on December 31,20X8,for $125,000.Pumpkin owns 75 percent of Spice'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?

Postage,a holder of a $400,000 Stamp 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,Stamp,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 Stamp's bond on the noncontrolling interest amount reported in Stamp's June 30,20X8,consolidated balance sheet?

Saturn Corporation issued $300,000 par value 10-year bonds at 107 on January 1,20X3,which Star Corporation purchased.On July 1,20X7,Pluto Corporation purchased $120,000 face value of Saturn bonds from Star.The bonds pay 12 percent interest annually on December 31.The preparation of consolidated financial statements for Saturn and Pluto 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?

Spice 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.Pumpkin Corporation purchased $140,000 of Spice's bonds from the original purchaser on January 1,20X8,for $122,000.Pumpkin owns 75 percent of Spice'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 20X9 year-end consolidated financial statements?

Peanut Corporation acquired 80 percent of Snoopy Company's voting shares on January 1,20X8,at underlying book value.On that date,it also purchased $500,000 par value 8 percent Snoopy bonds,which had been issued on January 1,20X5,with a 12-year maturity.During preparation of the consolidated financial statements for December 31,20X8,the following consolidating entry was made in the worksheet: -Based on the information given above,what price did Peanut pay to purchase the Snoopy bonds?

On January 1,20X6,Pepper Corporation issued 10-year bonds at par to unrelated parties.The bonds pay interest of $15,000 every June 30 and December 31.On December 31,20X9,Salt Corporation purchased all of Pepper's bonds in the open market at a $6,000 discount.Salt is Pepper's 80 percent owned subsidiary.Salt uses the straight-line method of amortization.The consolidated income statement for the year 20X9 should report with respect to the bonds: I.interest expense of $30,000. II.a gain of $6,000.

Pancake Corporation owns 85 percent of Syrup Corporation's voting shares.On January 1,20X8,Pancake Corporation sold $200,000 par value 8 percent bonds to Syrup 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,what amount of investment in bonds will be eliminated in the preparation of the 20X8 consolidated financial statements?

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