Question: Pacman Company issued 5-year, 8% bonds with a par value of $100,000 on December 31, 2009, for $92,278 (sold to yield 10%). Interest is paid

Pacman Company issued 5-year, 8% bonds with a par value of $100,000 on December 31, 2009, for $92,278 (sold to yield 10%). Interest is paid semiannually on June 30th and

December 31st. On December 31, 2010, $80,000 of the par value bonds were purchased by Space Invaders Company for $77,362 (a 9% yield). Space Invaders Company is a 70%-owned ubsidiary of Pacman Company. Both companies use the effective interest method to amortize bond discounts and premiums. Space Invaders Company declared cash dividends of $60,000 each year during the period 2010–2011.

Required:

(round answers to the nearest dollar)

A. Compute the total gain or loss on the constructive retirement of debt.

B. Allocate the total gain or loss between Pacman Company and Space Invaders Company.

C. Prepare the book entries related to the bonds made by the individual companies during

2011. (Hint: It will be helpful to prepare bond amortization schedules. Tables of Present

Value factors are presented in Appendix PV at the back of the book.)

D. Assume that the two companies reported net income as follows:

Step by Step Solution

★★★★★

3.47 Rating (154 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

Part A Cost of bond investment 77362 Par value 100000 Unamortized discount 6462 Carrying value of bonds 93537 Percent of bonds purchased 80 Carrying value of bonds purchased rounded up 74830 Total con... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

417-B-A-G-F-A (6143).docx

120 KBs Word File

Students Have Also Explored These Related Accounting Questions!

Barrett Company has completed all operating budgets other than the income statement for 2017. Selected data from these budgets follow. Sales: $300,000 Purchases of raw materials: $145,000 Ending...

A company has bonds outstanding with a par value of $400,000. The unamortized premium on these bonds is $2,000. The company retired these bonds by buying them on the open market at 97. What is the...

A company issues bonds with a par value of $800,000 on their issue date. The bonds mature in 5 years and pay 6% annual interest in two semiannual payments. On the issue date, the market rate of...

A company issues bonds with a par value of $200,000 on their issue date. The bonds mature in 10 years and pay a 10% annual contract rate of interest in semiannual payments. On the issue date, the...

2) On January 1, a company issues bonds dated January 1 with a par value of $420,000. The bonds mature in 5 years. The contract rate is 9%, and interest is paid semiannually on June 30 and December...

1) A company's board of directors votes to declare a cash dividend of 75 per share. The company has 15,000 shares authorized, 10,000 issued, and 9,500 shares outstanding. The total amount of the cash...

Steinberger Company issued 10-year, 8% bonds with a par value of $1,000,000 on January 2, 2009, for $1,040,000. Interest is payable semiannually on June 30 and December 31. On December 31, 2010,...

1. Charger Company's most recent balance sheet reports total assets of $29,375,000, total liabilities of $16,875,000 and total equity of $12,500,000. The debt to equity ratio for the period is...

1. Sweet Companys outstanding stock consists of 1,600 shares of noncumulative 4% preferred stock with a $100 par value and 11,600 shares of common stock with a $10 par value. During the first three...

The following comparative balance sheets 2019 & 2020 and additional information for "National Company" are given: Assets Dec. 31, 2020 Dec. 31, 2019 Cash $152,000 $44,000 Accounts Receivable 48,000...

A company issued 5-year, 7% bonds with a par value of $1,100,000. The market rate when the bonds were issued was 6.5%. The company received $1,111,000 cash for the bonds. Using the straight-line...

Refer to Exercises. Suppose Pacifics direct labor rate was $ 310 per hour. The Crockett engagement used the following resources last month: Allocation Base Crockett Direct labor hours .......150...

1. Discuss the conditions that have led to the development of global markets. 2. Differentiate between a global company and a multinational company. 3. Differentiate among the three international...

SCalcET 9 7 . 4 . 0 3 2 . Evaluate the integral. [ 1 , 2 ] ( x / ( x 2 + 4 x + 2 0 ) dx

At what temperature must 3 moles of gas be heated in a 30-liter container to maintain a pressure of 178 mmHg?

Write a risk management column discussing, Strategical, operational, financial, CSR, marketing, competitive, governance, regulatory, technological, physical, locational, technological, and people...

I need information about a micro start up business idea to sell online cooperate hampers. Customers subscribe to our company to order the special hampers due to the harsher lockdowns in Australia....

Write a Java program that will produce Celsius to Fahrenheit temperature conversion table. Assume that Fahrenheit temperature corresponding to Celsius temperature ranging from 5 to 50 degrees are to...

Determine the reaction forces at A and B. Find Ay, Ax, and RB. 25KN 8KN/m Sign Convention 45 A 1m 1m 2m

Once you understand that a problem exists, your next step is to _______ it. a. resolve b. communicate c. measure d. assign

Controlling share of consolidated net income is a measurement of income to the stockholders of the parent, but does a change in cash as reflected in a statement of cash flows also relate to other...

1. Workpaper entries normally: a. Are posted to the general ledger accounts of one or more of the affiliates b. Are posted to the general ledger accounts only when the financial statement approach is...

James Fromholtz is considering whether to invest in a newly formed investment fund. The fund's investment objective is to acquire home mortgage securities at what it hopes will be bargain prices. The...

A cashless society describes an economic state whereby financial transactions are not conducted with money in the form of physical banknotes or coins, but rather through the transfer of digital...

25. Richmond Rail Company has 3 rail cars available to move freight this period. Each car can hold 70 tons of material and 5238 cu/ft of volume. There are 4 types of freight available to be used A,...