Fargus Corporation owned 51% of the voting common stock of Sanatee, Inc. The par
ID: 2525513 • Letter: F
Question
Fargus Corporation owned 51% of the voting common stock of Sanatee, Inc. The parent's interest was acquired several years ago on the date that the subsidiary was formed. Consequently, no goodwill or other allocation was recorded in connection with the acquisition price.
On January 1, 2010, Sanatee sold $1,400,000 in ten-year bonds to the public at 108. The bonds pay a 10% interest rate every December 31. Fargus acquired 40% of these bonds on April 1, 2012, for 95% of the face value. Both companies utilized the straight-line method of amortization.
a.) Prepare amortization tables for Fargus (4/1/2012 to 12/31/2013) and (1/1/2010 to 12/31/2013)
Explanation / Answer
Book value of Bonds payable on Jan 1, 2010 (14000 x $108) $1,512,000 Less: Premium amortization for 2 years ($112000/10years x 2years) ($22,400) Book value of Bonds payable on Jan 1, 2012 $1,489,600 40% of Book Value on Jan 1, 2012 $595,840 40% of face value of bonds ($1400000 x 40%) $560,000 Book value of Bonds for Fargus ($560000 x 95%) $532,000 Discount on Bonds $28,000 Amortization of Bond Discount ($28000/8 years) $3,500 Interest on Bond = $560000 x 10% = $56000 Amortization table for Fargus (4/1/2012 to 12/31/2013) Date Interest Discount amortized Cash Received Bond Balance 4/1/2012 $532,000 12/31/2012 56000 3500 52500 $535,500 12/31/2013 56000 3500 52500 $539,000 Amortization table for Sanatee (1/1/2010 to 12/31/2013) Date Interest exp. Premium amortization Cash Paid Balance in Bonds Premium Balance in Bonds Payable Book value of Bonds 1/1/2010 $112,000 $1,400,000 $1,512,000 12/31/2010 $140,000 $11,200 $151,200 $100,800 $1,400,000 $1,500,800 12/31/2011 $140,000 $11,200 $151,200 $89,600 $1,400,000 $1,489,600 12/31/2012 $140,000 $11,200 $151,200 $78,400 $1,400,000 $1,478,400 12/31/2013 $140,000 $11,200 $151,200 $67,200 $1,400,000 $1,467,200
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