Question
Computing the Constructive Gain or Loss on Debt Retirement and Book Entries Weber Company issued five-year, 10% bonds on January 2, 2011, for 105. Par
Computing the Constructive Gain or Loss on Debt Retirement and Book Entries
Weber Company issued five-year, 10% bonds on January 2, 2011, for 105. Par value is $850,000. Interest is paid semiannually on June 30 and December 31. Weber Company is a 90%-owned subsidiary of Fairfield Company. On December 31, 2011, Fairfield Company purchased $510,000 of Weber Company"s par value bonds at 90 after the semiannual interest payment had been made. Weber Company declared dividends of $60,000 in 2011 and $80,000 in 2012. Both companies use the straight-line method to amortize bond discount and premium.
Required:
- Compute the total gain or loss on the constructive retirement of the debt.
- Allocate the total gain or loss between Weber Company and Fairfield Company.
- Prepare the book entries related to the bonds made by the individual companies in 2012.
- Assume that the two companies reported net income as follows
FAirfiled Weber
2014 $275,000 $190,000
2015 $350,000 $225,000
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