Paulina, Incorporated, owns 90 percent of Southport Company. On January 1, 2024, Paulina acquires half of Southport's $710,000 outstanding 13-year bonds. These bonds had been sold on the open market on January 1, 2021, at a 12 percent effective rate. The bonds pay a cash interest rate of 10 percent every December 31 and are scheduled to come due on December 31, 2033. Southport issued this debt originally for $618,786. Paulina paid $402,642 for this investment, indicating an 8 percent effective yield. Required: a. Assuming that both parties use the effective rate method, what gain or loss from the retirement of this debt should be reported or the consolidated income statement for 2023? b. Assuming that both parties use the effective rate method, what balances should appear in the Investment in Southport Bonds account on Paulina's records and the Bonds Payable account of Southport as of December 31, 2024? c. Assuming that both parties use the straight-line method, what consolidation entry would be required on December 31, 2024, because of these bonds? Assume that the parent is not applying the equity method. Complete this question by entering your answers in the tabs below. Required A Required B Required C Assuming that both parties use the straight-line method, what consolidation entry would be required on December 31, 2024, because of these bonds? Assume that the parent is not applying the equity method. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate calculations and final answers to the nearest dollar amount. Show less A
Paulina, Incorporated, owns 90 percent of Southport Company. On January 1, 2024, Paulina acquires half of Southport's $710,000 outstanding 13-year bonds. These bonds had been sold on the open market on January 1, 2021, at a 12 percent effective rate. The bonds pay a cash interest rate of 10 percent every December 31 and are scheduled to come due on December 31, 2033. Southport issued this debt originally for $618,786. Paulina paid $402,642 for this investment, indicating an 8 percent effective yield. Required: a. Assuming that both parties use the effective rate method, what gain or loss from the retirement of this debt should be reported or the consolidated income statement for 2023? b. Assuming that both parties use the effective rate method, what balances should appear in the Investment in Southport Bonds account on Paulina's records and the Bonds Payable account of Southport as of December 31, 2024? c. Assuming that both parties use the straight-line method, what consolidation entry would be required on December 31, 2024, because of these bonds? Assume that the parent is not applying the equity method. Complete this question by entering your answers in the tabs below. Required A Required B Required C Assuming that both parties use the straight-line method, what consolidation entry would be required on December 31, 2024, because of these bonds? Assume that the parent is not applying the equity method. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate calculations and final answers to the nearest dollar amount. Show less A
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable
Section: Chapter Questions
Problem 8C: On January 1, 2019, Brewster Company issued 2,000 of its 5-year, 1,000 face value, 11% bonds dated...
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Transcribed Image Text:Paulina, Incorporated, owns 90 percent of Southport Company. On January 1, 2024, Paulina acquires half of Southport's $710,000
outstanding 13-year bonds. These bonds had been sold on the open market on January 1, 2021, at a 12 percent effective rate. The
bonds pay a cash interest rate of 10 percent every December 31 and are scheduled to come due on December 31, 2033. Southport
issued this debt originally for $618,786. Paulina paid $402,642 for this investment, indicating an 8 percent effective yield.
Required:
a. Assuming that both parties use the effective rate method, what gain or loss from the retirement of this debt should be reported on
the consolidated income statement for 2023?
b. Assuming that both parties use the effective rate method, what balances should appear in the Investment in Southport Bonds
account on Paulina's records and the Bonds Payable account of Southport as of December 31, 2024?
c. Assuming that both parties use the straight-line method, what consolidation entry would be required on December 31, 2024,
because of these bonds? Assume that the parent is not applying the equity method.
Complete this question by entering your answers in the tabs below.
Required A Required B
Required C
Assuming that both parties use the straight-line method, what consolidation entry would be required on December 31, 2024, because of
these bonds? Assume that the parent is not applying the equity method.
Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate
calculations and final answers to the nearest dollar amount.
view transaction list
Consolidation
Worksheet Entries
<
1
Prepare Consolidation Entry *B to account for these bonds on December 31,
2024.
Note: Enter debits before credits.
Date
December 31, 2024.
Accounts
Debit
Credit
Show less A
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