P Products Inc. owns 75% of the common shares of S Corp. On January 1, 2019, P Products issued bonds with a par value of $350,000 which will mature on January 1, 2026. The bonds bear interest at an annual rate of 8%, with annual interest payments made each December 31st. At the date of issue of the bonds, P Products received proceeds of $360,000. The carrying amount for P Products on January 1, 2021, was $357,655. On January 1, 2021, S Corp. purchased 30% of P Products’ bonds on the open market for $100,519. Both companies use the effective interest method. Both companies have a December 31st year-end and pay income taxes at a rate of 40%. Bond gains and losses are to be allocated to each company. In 2021, S Corp. earned a net income of $80,000 and paid dividends of $20,000. Market rates (Yield) for these bonds was 7.46% on January 1, 2021 (issue date) and 9.10% on January 1, 2021 (S purchased 30% of P Products’ bonds).

REQUIRED:

1. Calculate the amount of the gain or loss that will appear as a separate item on the 2021 consolidated income statement, as a result of the bond transaction.
2. Calculate the after-tax gain or loss to S Corp. on the purchase of the Bonds.
3. Calculate the after-tax gain or loss to P Products on the purchase of the Bonds.
4. What amount of after-tax interest expense (if any) would have to be eliminated in 2021 as a result of the purchase of the Bonds?
5. What value would be shown on P Products’ December 31, 2021 Consolidated Balance Sheet for the Bond issue (Bonds Payable)?
6. . Calculate the non-controlling interest’s share of S’ Income for the year-ended Dec. 31, 2021.

Answer rating: 100% (QA)

ANSWERS 1Calculate the amount of the gain or loss that will appear as a separate item on the 2021 co... View the full answer