CALCULATOR MESSAGE HY ?NSTRUCTOR FULLSCREEN PR?NTER VERS?ON ·SACK ercise 9-1 ace

Question

CALCULATOR MESSAGE HY ?NSTRUCTOR FULLSCREEN PR?NTER VERS?ON ·SACK ercise 9-1 acelli Company issued 10-year, 10% bonds with a par valu n December 31, 2014, $800,000 of the par value bonds were purchased by Salez Company for $820,000. Salez Company is an oth companies use the straight-line method to amortize bond discounts and premiums e of $1,000,000 on January 2, 2013, for $940,000. Interest is paid semiannually on June 30 and December 3 Salez Company declared cash dividends of s60,000 each year during the period 2014-2015 (a) ?Your answer is correct. Compute the total gain or loss on the constructive retirement of debt ? 58400 Total constructive loss SHOW LIST OF sHoW Attempts: 1 of 3 used Your answer is correct. Allocate the total gain or loss between Pacelli Company and Salez Company All Rights Reserved. A Division of 2ohn Woley & Sons. In

Explanation / Answer

Part A Cost of bond investment $820,000 Par value $1,000,000 Unamortized discount ($60,000 (16/20))            48,000 Carrying value of bonds          952,000 Percent of bonds purchased 80% Carrying value of bonds purchased          761,600 Total constructive loss            58,400 Part B Pacelli Company Carrying value of bonds purchased $761,600 Par value          800,000 Constructive loss $38,400 Salez Company Cost of bond investment $820,000 Par value of bonds purchased          800,000 Constructive loss            20,000 Part C Pacelli Company Date Account Titles and Explnation Debit Credit June 30, 2015 Interest Expense (10%)(1/2)($1,000,000) $        50,000 Cash $        50,000 Interest Expense $          3,000 Discount on Bonds Payable $          3,000 $60,000 / 20 interest periods = $3,000 Dec 31, 2015 Interest Expense (10%)(1/2)($1,000,000) $        50,000 Cash $        50,000 Interest Expense $          3,000 Discount on Bonds Payable $          3,000 Salez Company Date Account Titles and Explnation Debit Credit June 30, 2015 Cash $        40,000 Interest Income ($800,000)(1/2)(10%) $        40,000 Interest Income $          1,250 Investment in Pacelli Company Bonds $          1,250 $20,000 premium /16 periods = $1,250 Dec 31, 2015 Cash $        40,000 Interest Income $        40,000 Interest Income $          1,250 Investment in Pacelli Company Bonds $          1,250

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