Subsidiary Bond Holdings Farflung Corporation has in excess of 60 subsidiaries worldwide. It owns 65 percent...

Subsidiary Bond Holdings

Farflung Corporation has in excess of 60 subsidiaries worldwide. It owns 65 percent of the voting common stock of Micro Company and 80 percent of the shares of Eagle Corporation. Micro sold $400,000 par value first mortgage bonds at par value on January 2, 20X0, to Independent Company. No intercorporate ownership exists between Farflung and its subsidiaries and Independent.

On December 31, 20X4, Independent determined the need for cash for other purposes and sold the Micro bonds to Eagle for $424,000. Farflung's accounting department was not aware of Eagle's bond purchase and included the Micro Company bonds among its long-term liabilities in the consolidated balance sheet prepared at December 31, 20X4.

Required:

In reviewing the financial statements of Farflung and its subsidiaries at December 31, 20X5, you discovered Eagle Corporation's investment in Micro's bonds and immediately brought it to the attention of Farflung's financial vice president. You have been asked to present your thoughts to the financial vice president detailing the appropriate reporting treatment when intercorporate bond ownership occurs in this way and to provide recommendations as to the actions, if any, Farflung should take in preparing its consolidated statements at December 31, 20X5. Are there any ethical issues that might arise under these circumstances?

Solutions

Expert Solution

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Please don't copy the already existing answer. Subsidiary Bond Holdings Farflung Corporation has in excess of...

Please don't copy the already existing answer. Subsidiary Bond Holdings Farflung Corporation has in excess of 60 subsidiaries worldwide. It owns 65 percent of the voting common stock of Micro Company and 80 percent of the shares of Eagle Corporation. Micro sold $400,000 par value first mortgage bonds at par value on January 2, 20X0, to Independent Company. No intercorporate ownership exists between Farflung and its subsidiaries and Independent. On December 31, 20X4, Independent determined the need for cash for...

Bond Sale from Parent to Subsidiary (Straight-Line Method): Lamar Corporation owns 60 percent of Humbolt Corporation’s...

Bond Sale from Parent to Subsidiary (Straight-Line Method): Lamar Corporation owns 60 percent of Humbolt Corporation’s voting shares. On January 1, 20X2, Lamar Corporation sold $150,000 par value, 6 percent first mortgage bonds to Hunbolt for $156,000. The current market interest rate is 5.475 percent. The bonds mature in 10 years and pay interest semiannually on January 1 and July 1. Prepare entries using straight line amortization of bond discount or premium.

Duke Corporation owns a 70 percent equity interest in Salem Company, a subsidiary corporation. During the...

Duke Corporation owns a 70 percent equity interest in Salem Company, a subsidiary corporation. During the current year, a portion of this stock is sold to an outside party. Before recording this transaction, Duke adjusts the book value of its investment account. What is the purpose of this adjustment? How would the parent company record this transaction?

Pole Corporation owns 65 percent of Stick Company's stock. At the end of 20X3, Pole and...

Pole Corporation owns 65 percent of Stick Company's stock. At the end of 20X3, Pole and Stick reported the following partial operating results and inventory balances: Pole Stick Total Sales $ 750,000 $ 200,000 Sales to Stick Company 150,000 Sales to Pole Corporation 75,000 Net income 35,000 Operating income (excluding investment income from Stick): 73,000 Inventory on hand, December 31, 20X3, purchased from: Stick Company 11,000 Pole Corporation 62,000 Pole regularly prices its products at cost plus a 40 percent...

Klon Corporation owns 70 percent of Brant Company’s stock and 60 percent of Torkel Company’s stock....

Klon Corporation owns 70 percent of Brant Company’s stock and 60 percent of Torkel Company’s stock. During 20X8, Klon sold inventory purchased in 20X7 for $66,000 to Brant for $110,000. Brant then sold the inventory at its cost of $110,000 to Torkel. Prior to December 31, 20X8, Torkel sold $50,000 of inventory to a nonaffiliate for $80,000 and held $60,000 in inventory at December 31, 20X8. a. Prepare the journal entries recorded by Klon, Brant, and Torkel during 20X8 relating...

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 preparing the consolidation worksheet for Pencil Corporation and its 60 percent–owned subsidiary, Stylus Company, the...

In preparing the consolidation worksheet for Pencil Corporation and its 60 percent–owned subsidiary, Stylus Company, the following consolidation entries were proposed by Pencil's bookkeeper: Worksheet Entries Debit Credit Cash 100,000 Accounts Payable 100,000 To eliminate the unpaid balance for intercorporate inventory sales in 20X5. Cost of Goods Sold 16,800 Income from Stylus Company 16,800 To eliminate unrealized inventory profits at December 31, 20X5. Income from Stylus Company 196,000 Sales 196,000 To eliminate intercompany sales for 20X5. Pencil's bookkeeper recently graduated...

Pretzel Corporation owns 60 percent of Stick Corporation’s voting shares. On January 1, 20X2, Pretzel Corporation...

Pretzel Corporation owns 60 percent of Stick Corporation’s voting shares. On January 1, 20X2, Pretzel Corporation sold $180,000 par value, 6 percent first mortgage bonds to Stick for $185,000. The bonds mature in 10 years and pay interest semiannually on January 1 and July 1. a. Prepare the journal entries for 20X2 for Stick related to its ownership of Pretzel’s bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do...

Kurt owns a convertible bond that matures in three years. The bond has an 8 percent...

Kurt owns a convertible bond that matures in three years. The bond has an 8 percent coupon and pays interest semi-annually. The face value of the bond is $1,000 and the conversion price is $25. Similar bonds have a market return of 9.25 percent. The current price of the stock is $26.50 per share. What is the minimum value of the convertible bond? what is the minimum value of the option to convert?

9) Padhy Corporation owns 80% of Abrams Corporation, Abrams Corporation owns 60% of Bacud Corporation, and...

9) Padhy Corporation owns 80% of Abrams Corporation, Abrams Corporation owns 60% of Bacud Corporation, and Bacud Corporation owns 10% of Abrams Corporation. The separate net incomes (excluding investment income) of Padhy, Abrams, and Bacud are $300,000, $100,000, and $80,000, respectively. Assume the investments were acquired at a cost equal to the book value of each investment, which also equals the fair value. Required: Calculate the controlling interest share of consolidated net income and the noncontrolling interest shares for Padhy...

Subjects