ON JANUARY 1 2004 THE PANTHER COMPANY ACQUIRED ALL OF THE STOCK OF THE BRONCO CO

Question

ON JANUARY 1 2004 THE PANTHER COMPANY ACQUIRED ALL OF THE STOCK OF THE BRONCO COMPANY AT BOOK VALUE. NEITHER PANTHER NOR BRONCO COMPANIES PAY DIVIDENDS AND PANTHER ACCOUNTS FOR ITS OWNERSHIP OF BRONCO USING THE INITIAL VALUE METHOD. ON JANUARY 1, 2011 PANTHER COMPANY ISSUED $1,000,000 10 YEAR 8% BONDS FOR $930,000. PANTHER USES STRAIGHT LINE AMORTIZATION ON JANUARY 1, 2014 BRONCO COMPANY ACQUIRED ½ OF THE PANTHER BONDS IN THE OPEN MARKET PAYING $521,000 BRONCO ALSO USES STRAIGHT LINE AMORTIZATION REQUIRED: A) PREPARE THE JOURNAL ENTRY PANTHER USED WHEN IT ISSUED (SOLD) THE BONDS IN 2011 B) WHAT IS PANTHER’S ANNUAL INTEREST EXPENSE? C) PREPARE THE JOURNAL ENTRY BRONCO USED WHEN IT BOUGHT ½ OF THE BONDS IN 2014 D) WHAT IS BRONCO’S ANNUAL INTEREST REVENUE? E) PREPARE THE NECESSARY WORKSHEET ENTRIES FOR 2014 AND 2015

Explanation / Answer

A Cash A/C dr.            930,000 Discount on bonds Payable A/C              70,000 To bond payable A/C    1,000,000 B Yearly Interest Expenses 1000000*8%              80,000 Discount on Bond              70,000 Yearly Amortization 70000/10           7,000 Then yearly Interest Expenses is 80000+7000=         87,000 C Bonds recievable A/C dr            500,000 Premium on bonds              21,000 To cash       521,000 D yearly interest income 500000*8% =         40,000

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