E7-9

E 7-9 Different assumptions for purchase of parent's bonds and subsidiary's bonds The balance sheets of Pin and Sid Corporations, an 80 percent-owned subsidiary of Pin, at December 31, 2011, are as follows (in thousands): Pin Sid $ 2,440 3.000 8,000 15,000 $2,500 300 1,200 5,500 6,560 $35,000 $9,500 Assets Cash Accounts receivable--net Other current assets Plant assets-net Investment in Sid Total assets Liabilities and Stockholders'Equity Accounts payable Interest payable 10% bonds payable (due January 1, 2017) Capital stock Retained earnings Total liabilities and stockholders' equity $ 750 250 4,900 25,000 4,100 $35,000 $ 230 50 1,020 7,000 1,200 $9,500 The book value of Pin's bonds reflects a $100,000 unamortized discount. The book value of Sid's bonds reflects a $20,000 unamortized premium. REQUIRED 1. Assume that Sid purchases $2,000,000 par of Pin's bonds for $1,900,000 on January 2, 2012, and that semiannual interest is paid on July 1 and January 1. Determine the amounts at which the following items should appear in the consolidated financial statements of Pin and Sid at and for the year ended December 31, 2012. a. Gain or loss on bond retirement b. Interest payable c. Bonds payable at par value 00002 d. Investment in Pin bonds 2. Disregard 1 above and assume that Pin purchases $1,000,000 par of Sid's bonds for $1,030,000 on Janu- ary 2, 2012, and that semiannual interest on the bonds is paid on July 1 and January 1. Determine the amounts at which the following items will appear in the consolidated financial statements of Pin and Sid for the year ended December 31, 2012 a. Gain or loss on bond retirement b. Interest expense (assume straight-line amortization) c. Interest receivable d. Bonds payable at book value E 7-10