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Pan Corporation owns 65 percent of Sauce Corporation's voting shares. On January 1, 20X3, Pan Corporation...

Pan Corporation owns 65 percent of Sauce Corporation's voting shares. On January 1, 20X3, Pan Corporation sold $300,000 par value 7 percent bonds to Sauce when the market interest rate was 4 percent. The bonds mature in 15 years and pay interest semiannually on June 30 and December 31.


Based on the information given above, in the preparation of the 20X3 consolidated financial statements, premium on bonds payable will be:

credited for $95,766 in the consolidation entries.

credited for $100,784 in the consolidation entries.

debited for $95,766 in the consolidation entries.

debited for $100,784 in the consolidation entries.

Solutions

Expert Solution

Answer : "debited for $95766 in the consolidation entries"

Because it is credited to the seller's books and on consolidation

Elimination entry it is debited.

Bonds sale value:

300000*3.5%*PVIFA(2%,30) + 300000 * PVIF(2%,30)

300000*3.5%*22.3965 + 300000 * 0.5521 = 400793.3

Amortisation:

Int. expense

Cash int.

Pre. amortised

Carrying value

400793

1st interest

8016

10500

-2484

398309

2nd interest

7966

10500

-2534

395775

or 395766

Premium on bonds payable debited to

consolidated entries = 395766-300000=95766

ekkarill92 answered 2 years ago
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