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:
3000003.5%PVIFA(2%,30) + 300000 * PVIF(2%,30)
3000003.5%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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