Pepper Enterprises owns 95 percent of Salt Corporation. On January 1, 20X1, Salt Issued $270,000 of five-year bonds at 115. Annualinterest of 12 percent is paid semiannually on January 1 and July 1. Pepper purchased $170,000 of the bonds on August 31, 20X3, atpar value. The following balances are taken from the separate 20X3 financial statements of the two companies:Note: Assume using straight-line amortization of bond discount or premium.Investment in Salt Corporation BondsPepperEnterprises$ 175,7007,85010,200SaltCorporationInterest IncomeInterest ReceivableBonds PayableBond PremiumInterest ExpenseInterest PayableRequired:$ 270,00026,70024,30020,400a. Compute the amount of interest expense that should be reported in the consolidated income statement for 20X3.b. Compute the gain or loss on constructive bond retirement that should be reported in the 20X3 consolidated income statement.c. Prepare the consolidation worksheet consolidation entry or entries as of December 31, 20X3, to remove the effects of theintercorporate bond ownership

A. Interest ExpensePepper's Interest Expense:Pepper purchased the bonds at par value, so no interest…

Answered: Pepper Enterprises owns 95 percent of…

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 7MCQ

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On May 1, 20X1, Starlight Company purchased $750,000 of Gazing Corp's 12% bonds at 100 plus accrued interest. On December 31, 20X1, Starlight Co. received its annual interest. On March 31, 20X3, Starlight decided to sell half the bonds to Twinkly Inc. at 99 plus accrued interest. Prepare the journal entries for the following transactions: a. The purchase of the bonds b. The receipt of all interest c. The sale of the bonds to Twinkly Inc.
On July 1, Year 1, XYZ Corporation purchased as a long-term investment a $2 million face amountABC Co. 6% bond for $2,025,000 plus accrued interest to yield 5.75%. On December 31, Year 1,the bonds had a fair value of $1,850,000. What amount of income should XYZ report on its incomestatement for the year ended December 31, Year 1, related to this bond investment if it is classifiedas a held-to-maturity security?a. $120,000b. $116,438c. $121,500d. $115,000
Doyle Company issued $500,000 of 10-year, 7 percent bonds on January 1, Year 1. The bonds were issued at face value. Interest is payable in cash on December 31 of each year. Doyle immediately invested the proceeds from the bond issue in land. The land was leased for an annual $125,000 of cash revenue, which was collected on December 31 of each year, beginning December 31, Year 1. Organize the transaction data in accounts under the accounting equation for Year 1 and Year 2. (Enter any decreases to account balances with a minus sign. If there is no effect on the Account Titles for Retained Earnings, leave the cell blank. Not all cells will require entry.)
Wildhorse Corporation had these transactions pertaining to debt investments: Jan. 1 Purchased 96 11%, $1,000 Martine Co. bonds for $96,000 cash. Interest is payable semiannually on July 1 and January 1. July 1 Received semiannual interest on Martine Co. bonds. July 1 Sold 33 Martine Co. bonds for $34,160.
38. On October 1, Dennis Company purchased P200,000 face value, 12% bonds at 98 plus accrued interest and brokerage fees and classified them as amortized cost assets. Interest is paid semiannually on January 1 and July 1. Brokerage fees for this transaction were $700. At what amount should this acquisition of bonds be recorded? a. 196,000 b. 196,700 c. 202,000 d. 202,700
Gonzalez Company acquired $183,600 of Walker Co., 4% bonds on May 1 at their face amount. Interest is paid semiannually on May 1 and November 1. On November 1, Gonzalez Company sold $43,800 of the bonds for 97. Journalize entries to record the following in Year 1 (refer to the Chart of Accounts for exact wording of account titles): a. The initial acquisition of the bonds on May 1. b. The semiannual interest received on November 1. c. The sale of the bonds on November 1. d. The accrual of $932 interest on December 31.
On August 1 of the current year, Fleetwood Company purchased 5,000 , P1,000 , 12% bonds on Ritchie Company at 104 plus accrued interest . The bonds pay interest semiannually on May 1 and November 1. On December 1 of the current year, Fleetwood sold 2,000 of the bonds at 102 plus accrued interest. What is the gain or loss on sale of investment? indicate if gain or loss
3. Conor Corporation has $10,500,000 of 5 percent, 10-year bonds dated January 1, with interest payment dates of June 30 and December 31. The company’s fiscal year ends December 31. A. Assume the bonds are issued for $9,720,000 on January 1 to yield an effective interest rate of 6 percent. Prepare journal entries for January 1, June 30, and December 31, assuming that Conor Corporation uses the effective interest method to amortize bond premiums or discounts. B. Calculate the net book value of the bonds after the interest payments have been made on June 30 and December 31.
On July 1, 20x1, Santa Co. acquires P2,000,000 face amount, 10% bonds for P2,000,000 and classifies the investment as FVOCI. On Dec. 31, 20x1, the bonds are quoted at 98 and Santa Co. estimates 12-month expected credit losses of P10,000. What amounts (excluding interest) are recognized in profit or loss (P/L) and other comprehensive income (OCI) in 20x1? OCI P/L OCI P/L 10,000 b. 30,000 30,000 10,000 с. 0 40,000 a. d. 40,000 0.
On January 1, Year 2, Grand Company purchased as held for collection investment P1,000,000 face value of Greek Company’s 8% bonds for P912,400. The bonds were purchased to yield 10% interest. The bonds mature on January 1 Year 7, and pay interest annually on January 1. What amount should Grand Company report on its December 31, Year 2 statement of financial position for held for collection investment?
Doyle Company issued $235,000 of 10-year, 6 percent bonds on January 1, Year 1. The bonds were issued at face value. Interest is payable in cash on December 31 of each year. Doyle immediately invested the proceeds from the bond issue in land. The land was leased for an annual $46,500 of cash revenue, which was collected on December 31 of each year, beginning December 31, Year 1. b. Prepare the income statement, balance sheet, and statement of cash flows for Year 1 and Year 2.
Doyle Company issued $390,000 of 10-year, 8 percent bonds on January 1, Year 2. The bonds were issued at face value. Interest is payable in cash on December 31 of each year. Doyle immediately invested the proceeds from the bond issue in land. The land was leased for an annual $52,500 of cash revenue, which was collected on December 31 of each year, beginning December 31, Year 2. b. Prepare the income statement, balance sheet, and statement of cash flows for Year 2 and Year 3. Complete this question by entering your answers in the tabs below. Req B Income Req B Balance Statement Sheet Req B Statement of Cash Flows Prepare the statement of cash flows for Year 2 and Year 3. Note: Amounts to be deducted and cash outflows should be indicated with minus sign. DOYLE COMPANY Statement of Cash Flows For the Year Ended December 31 Cash flows from operating activities ces Net cash flow from operating activities Cash flows from investing activities Net cash flows from investing activities Cash…

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