Pad Corporation has $4,000,000 of 12 percent bonds outstanding on December 31, 2011, with unamortized premium of

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Pad Corporation has $4,000,000 of 12 percent bonds outstanding on December 31, 2011, with unamortized premium of $120,000. These bonds pay interest semiannually on July 1 and January 1 and mature on January 1, 2017.
On January 2, 2012, Sal Corporation, an 80 percent-owned subsidiary of Pad, purchases $1,000,000 par of Pad's outstanding bonds in the market for $980,000.
ADDITIONAL INFORMATION
1. Pad and Sal use the straight-line method of amortization.
2. The financial statements are consolidated.
3. Pad's bonds are the only outstanding bonds of the affiliated companies.
4. Sal's net income for 2012 is $400,000 and for 2013, $600,000.
REQUIRED
1. Compute the constructive gain or loss that will appear in the consolidated income statement for 2012.
2. Prepare a consolidation entry (entries) at December 31, 2012, to eliminate the effect of the intercompany bondholdings.
3. Compute the amounts that will appear in the consolidated income statement for 2013 for the following:
a. Constructive gain or loss
b. Noncontrolling interest share
c. Bond interest expense
d. Bond interest income
4. Compute the amounts that will appear in the consolidated balance sheet at December 31, 2013, for the following:
a. Investment in Pad bonds
b. Book value of bonds payable
c. Bond interest receivable
d. Bond interest payable
Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Consolidated Income Statement
When talking about the group financial statements the consolidated financial statements include Consolidated Income Statement that a parent must prepare among other sets of consolidated financial statements. Consolidated Income statement that is...
Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Advanced Accounting

ISBN: 978-0133451863

12th edition

Authors: Floyd A. Beams, Joseph H. Anthony, Bruce Bettinghaus, Kenneth Smith

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