ended December 31, 2019. E 7-6 Parent purchases subsidiary bonds Pat Corporation
ID: 2542652 • Letter: E
Question
ended December 31, 2019. E 7-6 Parent purchases subsidiary bonds Pat Corporation owns a 70 percent interest in Son Corporation acquired several years ago at book value equal to fair value. On January 1, 2011, Son had outstanding $500,000 of 9 percent bonds with a book value of $495,000. On Janu ary 2, 2011, Pat purchased $250,000 of Son's 9 percent bonds for $251,500. The bonds are due on January 1, 2015, and pay interest on January 1 and July 1 REQUIRED 1. Determine the gain or loss on the constructive retirement of Son's bonds. 2. Son reports net income of $7,000 for 2011. Determine Pat's income from Son.Explanation / Answer
PART-1)
Cost paid to retire 1/2 son's bonds
251,500
Par value
250,000
Constructive loss on bond retirement
1,500
BV of retired bonds ( 495,000 * 0.5)
247500
Par value
250,000
Constructive loss on bond retirement
2,500
PART-2)
Share of son's reported income
7,000
Minus: Constructiv loss
-2,500
Add: Son amortize expense (5000 / 4 *50%)
625
5,125
NCI percentage of ownership
30%
1,538
EQUIN
Pat percentage of ownership
70%
3588
Plus: Pat bonds amortization (1500/4)
375
Less: Constructive loss
-1,500
EQUIN
2463
Journal entries:
Bonds payable
250,000
Investment in S company
250,000
Loss on constructive retirement of bonds
1,500
Investment in S company
1,500
Loss on constructive retirement of bonds
2,500
Discount on bonds payable
2,500
Interest revenue (9% * 250,000)
22500
Interest expense
22,500
Investment in S company (1500/4)
750
Interest revenue
750
Discount on bonds payable (5000/4 * 50%)
625
Interest expense
625
PART-1)
Cost paid to retire 1/2 son's bonds
251,500
Par value
250,000
Constructive loss on bond retirement
1,500
BV of retired bonds ( 495,000 * 0.5)
247500
Par value
250,000
Constructive loss on bond retirement
2,500
PART-2)
Share of son's reported income
7,000
Minus: Constructiv loss
-2,500
Add: Son amortize expense (5000 / 4 *50%)
625
5,125
NCI percentage of ownership
30%
1,538
EQUIN
Pat percentage of ownership
70%
3588
Plus: Pat bonds amortization (1500/4)
375
Less: Constructive loss
-1,500
EQUIN
2463
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