fcorporation owns90* of the outstandng common stock of S Company. OnJanuary 1, 2

Question

fcorporation owns90* of the outstandng common stock of S Company. OnJanuary 1, 2014, S Company issued $50a000, 12%, ten year bonds. On anuary 1,2016. P Corporation paid $416.000 for S Company bonds with a par value of $400,000 and a carrying value of 5395,600. Both companies use the straight-line method to amortize bond premiums and discounts PCorpora accounts for the investment using the cost method of accounting PCorporation would report a balance in the Invetment in S Company Bonds account on December 31. 2016 of O A 1410.500

Explanation / Answer

investment in scompany as on dec31st-2016

?working note:

bond premium =416000-400000

=16000

?stright line method of bond premium amortised=net premium/intrest period

   =16000/8years

? =2000per year

? carrying value of bond on dec31st-2016=416000-2000

? i.e 414000$

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