OnJanuary1,2006,PaceCorporationissued$500,000parvalue,10-year,15%bonds. Interest is payable each June 30 and December 31. On January 1, 2009, Supra Corporation, a 90% owned subsidiary, purchased on the open market all of the parent company bonds. Both companies have a December 31 year-end. For this problem, assume the following four independent cases.

Required:
A. For cases 1 and 2, compute the total constructive gain or loss and the portion allocated to each company.
B. For cases 1 and 2 prepare the journal entry or entries to be made by Pace Corporation and Supra Corporation on June 30, 2009. Both companies amortize discounts and premiums each interest payment date and use the straight-line method of amortization. Assume that Pace uses the partial equity method to account for its investment in Supra.
C. Complete the following schedules as of December 31, 2009, after the December 31 interest payment (receipt) and amortization of discount or premium have been recorded

D. For cases 1 and 2, prepare in general journal form the intercompany bond elimination entries required in the December 31, 2009, consolidated statementsworkpaper.

Transcribed Image Text:

Purchase Price y Subra Corporation o on January 1, 2006 January 1, 2009 Issue Price by Pace Corpoation Case 1 Case 2 Case 3 Case 4 $512,000 488,000 512,000 488,000 $514,000 486,000 486,000 514,000 Issue Pricae Pace Corporation $512,000 $488,000 Bond Payable Unamortized Premium (discount) Carrying Value of Bonds 2009 Gash Pavment for Interest (Premium) Discount Amortization 2009 Bond Interest Expense Increase (decrease) in Net Income from Amortization