Advanced Accounting
Advanced Accounting
12th Edition
ISBN: 9781305084858
Author: Paul M. Fischer, William J. Tayler, Rita H. Cheng
Publisher: Cengage Learning
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Chapter 5, Problem 2E

1.

To determine

Introduction: Consolidation is a process in which financial statements of subsidiary is merged with financial statements of the parent. In this process, effect of intercompany transactions are eliminated.

To show:. The effect of purchase of bonds on cosolidated net income.

2.

To determine

Introduction: Consolidation is a process in which financial statements of subsidiary is merged with financial statements of the parent. In this process, effect of intercompany transactions are eliminated.

To show:. The effect of purchase of bonds on the income distribution schedule.

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On January 2, 2015, Blue Spruce Corporation, a small company that follows ASPE, issued $1.8 million of 10% bonds at 98 due on December 31, 2024. Legal and other costs of $180,000 were incurred in connection with the issue. Blue Spruce Corporation has a policy of capitalizing and amortizing the legal and other costs incurred by including them with the bond recorded at the date of issuance. Interest on the bonds is payable each December 31. The $180,000 of issuance costs are being deferred and amortized on a straight-line basis over the 10-year term of the bonds. The discount on the bonds is also being amortized on a straight-line basis over the 10 years. (The straight-line method is not materially different in its effect compared with the effective interest method.) The bonds are callable at 102 (that is, at 102% of their face amount), and on January 2, 2020, the company called a face amount of $1,000,000 of the bonds and retired them. Ignoring income taxes, calculate the amount of…
Linco Industries is a 90%- owned subsidiary of Sharp Incorporated. On January 1, 2015, Linco issued $100,000 of 10- year, 6% bonds for $86,580, to yield 8% interest. Interest is paid annually on January 1. The effective interest method is used to amortize the premium. Sharp purchased the bonds for $84,901 on January 2, 2018, when the market rate of interest was 9%. On the purchase date, the remaining discount on the bonds was $10,413. Linco’s 2018 net income was $500,000.1. Prepare the eliminations and adjustments required for this purchase on the December 31, 2018, consolidated worksheet. Amortization schedules will be needed to January 1, 2019.2. Prepare the 2018 income distribution schedule for the NCI.
On May 1, 2010, Kirmer Corp. purchased $450,000 of 12% bonds, interest payable on January 1 and July 1, for $422,800 plus accrued interest. The bonds mature on January 1, 2016. Amortization is recorded when interest is received by the straight-line method (by months and round to the nearest dollar). (Assume bonds are available for sale.)   a) Prepare the entry for May 1, 2010.   b) The bonds are sold on August 1, 2011, for $425,000 plus accrued interest. Prepare all entries required to properly record the sale.
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