Concept explainers
a.
Identify the consolidation entry which would be required for these bonds on December 31, 2016.
a.
Explanation of Solution
The consolidation entry which would be required for these bonds on December 31, 2016:
Entry B | ||||
Date | Accounts Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
12/31/2016 | Bond payable | 154,040 | ||
Loss on retirement of Debt | 49,000 | |||
Interest Income | 14,070 | |||
Investment in Bonds | 198,870 | |||
Interest expense | 18,240 | |||
(being the intra-entity bonds and the loss on retirement recognized) |
Table: (1)
Working note:
Computation of Loss on Repurchase of Bonds | |
Particulars | Amount |
Cost of acquisition | $ 201,000 |
Carrying amount of Bonds | $ 152,000 |
Loss on repurchase | $ 49,000 |
Computation of Investment in Bonds as on December 31, 2016 | |
Particulars | Amount |
Cost of acquisition | $ 201,000 |
Amortization of premium: | |
Cash interest | $ 16,200 |
Interest income | $ 14,070 |
Investment in Bonds as on December 31, 2016 | $ 198,870 |
Computation of Bonds payable as on December 31, 2016 | |
Carrying amount of Bonds | $ 152,000 |
Amortization of discount: | |
Cash interest | $ 16,200 |
Interest expense | $ 18,240 |
Bonds payable as on December 31, 2016 | $ 154,040 |
Table: (2)
Computation of interest expense:
Computation of interest income:
b.
Identify the consolidation entry which would be required for these bonds on December 31, 2018.
b.
Explanation of Solution
The consolidation entry which would be required for these bonds on December 31, 2018 is as follows:
Entry *B | ||||
Date | Accounts Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
12/31/2018 | Bond payable | 158,884 | ||
Investment in Company Z | 40,266 | |||
Interest Income | 13,761 | |||
Investment in Bonds | 194,152 | |||
Interest expense | 18,759 | |||
(being the intra-entity bonds and the loss on retirement recognized) |
Table: (3)
Working note:
Computation of Interest Balances for 2017 followed by 2018:
Interest Balances for 2017 followed by 2018 | |
Interest income: $198,870 | $13,921 |
Interest expense: $154,040 | $18,485 |
Table: (4)
Computation of Investment in Bonds Balance as on December 31, 2017:
Investment in Bonds Balance, December 31, 2017 | |
Carrying amount, January 1, 2017 | $ 198,870 |
Amortization of premium: | |
Cash interest | $ 16,200 |
Effective interest income | $ 13,921 |
Investment in Bonds balance as on December 31, 2017 | $ 196,591 |
Table: (5)
Computation of Bonds payable balance as on December 31, 2017:
Bonds Payable Balance as on December 31, 2017 | |
Carrying amount, January 1, 2017 | $ 154,040 |
Amortization of discount: | |
Cash interest | $ 16,200 |
Effective interest expense | $ 18,485 |
Bonds payable balance as on December 31, 2017 | $ 156,325 |
Table: (6)
Computation of Investment in Bonds balance as on December 31, 2018:
Investment in Bonds Balance, December 31, 2018 | |
Carrying amount, January 1, 2018 | $ 196,591 |
Amortization of premium: | |
Cash interest | $ 16,200 |
Effective interest income | $ 13,761 |
Investment in Bonds balance as on December 31, 2018 | $ 194,152 |
Table: (7)
Computation of Bonds payable balance as on December 31, 2018:
Bonds Payable Balance, December 31, 2018 | |
Carrying amount, January 1, 2018 | $ 156,325 |
Amortization of discount: | |
Cash interest | $ 16,200 |
Effective interest expense | $ 18,759 |
Bonds payable balance as on December 31, 2018 | $ 158,884 |
Table: (8)
Want to see more full solutions like this?
Chapter 6 Solutions
LooseLeaf for Advanced Accounting (Irwin Accounting) - Standalone book
- Parilo Company acquired 170,000 of Makofske Co., 5% bonds on May 1, 2016, at their face amount. Interest is paid semiannually on May 1 and November 1. On November 1, 2016, Parilo Company sold 50,000 of the bonds for 96. Journalize entries to record the following: 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 1,000 interest on December 31, 2016.arrow_forwardSeveral years ago, Brant, Incorporated, sold $1,020,000 in bonds to the public. Annual cash interest of 8 percent ($81,600) was to be paid on this debt. The bonds were issued at a discount to yield 10 percent. At the beginning of 2022, Zack Corporation (a wholly owned subsidiary of Brant) purchased $170,000 of these bonds on the open market for $191,000, a price based on an effective interest rate of 6 percent. The bond liability had a carrying amount on that date of $900,000. Assume Brant uses the equity method to account internally for its investment in Zack. Required: a. & b. What consolidation entry would be required for these bonds on December 31, 2022 and December 31, 2024? 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 nearest whole number. No 1 2 Date December 31, 202 Bonds payable Loss on retirement of debt Interest income Answer is not complete.…arrow_forwardSeveral years ago Brant, Inc., sold $960,000 in bonds to the public. Annual cash interest of 9 percent ($86,400) was to be paid on this debt. The bonds were issued at a discount to yield 12 percent. At the beginning of 2019, Zack Corporation (a wholly owned subsidiary of Brant) purchased $120,000 of these bonds on the open market for $141,000, a price based on an effective interest rate of 7 percent. The bond liability had a carrying amount on that date of $820,000. Assume Brant uses the equity method to account internally for its investment in Zack. a. & b. What consolidation entry would be required for these bonds on December 31, 2019 and December 31, 2021? (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 nearest whole number.) No 1 2 Answer is complete but not entirely correct. Accounts Date December 31, 201 Bonds payable Interest income Investment in bonds…arrow_forward
- Several years ago Brant, Inc., sold $960,000 in bonds to the public. Annual cash interest of 7 percent ($67,200) was to be paid on this debt. The bonds were issued at a discount to yield 10 percent. At the beginning of 2019, Zack Corporation (a wholly owned subsidiary of Brant) purchased $120,000 of these bonds on the open market for $141,000, a price based on an effective interest rate of 5 percent. The bond liability had a carrying amount on that date of $820,000. Assume Brant uses the equity method to account internally for its investment in Zack. a. & b. What consolidation entry would be required for these bonds on December 31, 2019 and December 31, 2021? (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 nearest whole number.) Answer is complete but not entirely correct. No Date 1 December 31, 201 Bonds payable Interest income 2 Accounts Loss on retirement of…arrow_forwardSeveral years ago Brant, Inc., sold $950,000 in bonds to the public. Annual cash interest of 8 percent ($76,000) was to be paid on this debt. The bonds were issued at a discount to yield 10 percent. At the beginning of 2019, Zack Corporation (a wholly owned subsidiary of Brant) purchased $190,000 of these bonds on the open market for $211,000, a price based on an effective interest rate of 6 percent. The bond liability had a carrying amount on that date of $770,000. Assume Brant uses the equity method to account internally for its investment in Zack. What consolidation entry would be required for these bonds on December 31, 2019 and December 31, 2021?arrow_forwardSeveral years ago Brant, Inc., sold $800,000 in bonds to the public. Annual cash interest of 8 percent ($64,000) was to be paid on this debt. The bonds were issued at a discount to yield 10 percent. At the beginning of 2019, Zack Corporation (a wholly owned subsidiary of Brant) purchased $160,000 of these bonds on the open market for $181,000, a price based on an effective interest rate of 6 percent. The bond liability had a carrying amount on that date of $660,000. Assume Brant uses the equity method to account internally for its investment in Zack. a. & b. What consolidation entry would be required for these bonds on December 31, 2019 and December 31, 2021? (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 nearest whole number.)arrow_forward
- Several years ago Brant, Inc., sold $780,000 in bonds to the public. Annual cash interest of 9 percent ($70,200) was to be paid on this debt. The bonds were issued at a discount to yield 12 percent. At the beginning of 2019, Zack Corporation (a wholly owned subsidiary of Brant) purchased $130,000 of these bonds on the open market for $151,000, a price based on an effective interest rate of 7 percent. The bond liability had a carrying amount on that date of $660,000. Assume Brant uses the equity method to account internally for its investment in Zack. a. & b. What consolidation entry would be required for these bonds on December 31, 2019 and December 31, 2021? Prepare Consolidation Entry B to account for these bonds on December 31, 2019. Prepare Consolidation Entry *B to account for these bonds on December 31, 2021.arrow_forwardSeveral years ago Brant, Inc., sold $900,000 in bonds to the public. Annual cash interest of 9 percent ($81,000) was to be paid on this debt. The bonds were issued at a discount to yield 12 percent. At the beginning of 2019, Zack Corporation (a wholly owned subsidiary of Brant) purchased $150,000 of these bonds on the open market for $171,000, a price based on an effective interest rate of 7 percent. The bond liability had a carrying amount on that date of $780,000. Assume Brant uses the equity method to account internally for its investment in Zack. a. & b. What consolidation entry would be required for these bonds on December 31, 2019 and December 31, 2021? (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 nearest whole number.) view transaction list Consolidation Worksheet Entries 1 2 Prepare Consolida Entry B 2019. Note: Enter debits before credits. Record entry…arrow_forwardSeveral years ago, Soriano Corporation sold bonds with a face value of $1,000,000 to the public at a premium. Annual cash interest of 8 percent (i.e., $80,000) was to be paid on this debt. On January 1, 2019, Padino Inc., the parent company of Soriano Corporation, purchased these bonds on the open market for $940,000. (Hint: Did Padino purchase the bonds at a discount or a premium?) On that date, the bonds had 10 years until maturity and Soriano reported the book value of Bonds Payable of $1,045,000. Assume Padino uses the equity method to internally account for its investment in Soriano. Both parties use the straight-line method of amortization. Prepare the Bonds Payable amortization table for Soriano Corporation for years 2019-2021.arrow_forward
- 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…arrow_forwardWBE Ltd. sold $7,660,000 of 12% bonds, which were dated March 1, 2023, on June 1, 2023. The bonds paid interest on September 1 and March 1 of each year. The bonds' maturity date was March 1, 2033, and the bonds were issued to yield 14%. WBE's fiscal year-end was February 28, and the company followed IFRS. On June 1, 2024, WBE bought back $3,660,000 worth of bonds for $3,560,000 plus accrued interest. Using 1. a financial calculator, or 2. Excel function PV, calculate the issue price of the bonds and prepare the entry for the issuance of the bonds. Hint: Use the account Interest Expense in your entry). (Round answer to O decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List all debit entries before credit entries.) Account Titles and Explanation eTextbook and Media Debit Carrying amount of the bond $ Credit Using…arrow_forwardCarsen Company purchased $200,000 of 10% bonds of Garrison Co. on January 1, 2012, paying $211,950. The bonds mature January 1, 2022; interest is payable each July 1 and January 1. The discount of $11,950 provides an effective yield of 9%. Carsen's objective is to hold the bonds to collect the contractual cash flows. Carsen Company uses the effective interest method. On July 1, 2012, Carsen Company should decrease its Held-for-collection Debt Investments account for the Garrison Co. bonds by: $462. $808. $924. 4. $1,598. 123arrow_forward
- Financial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage LearningIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning