P8-26A Intercorporate Bond Holdings and Other Transfers (Straight-Line Method) 60,000 On January 1, 20X5, Pond Corporation purchased 75 percent of Skate Company's stock at underlying book value. At that date, the fair value of the noncontrolling interest was equal to 25 percent of Skate's book value. The balance sheets for Pond and Skate at January 1, 20X8, and December 31, 20X8, and income statements for 20X8 were reported as follows: 20X8 Balance Sheets Pond Corporation Skate Company January 1 December 31 January 1 December 31 Cash $ 57,600 $ 53,100 $ 10,000 $ 47,000 Accounts Receivable 130,000 176,000 65,000 Interest & Other Receivables 40,000 45,000 8,000 10,000 Inventory 100,000 140,000 50,000 50,000 Land 50,000 50,000 22,000 22,000 Buildings and Equipment 400,000 400,000 240,000 240,000 Accumulated Depreciation (150,000) (185,000) (70,000) (94,000) Investment in Skate Company: Stock 122,100 139,050 Bonds 42,800 42,400 Investment in Tin Co. Bonds 135,000 134,000 Total Assets $ 927,500 $ 994,550 $ 320,000 $ 340,000 Accounts Payable $ 60,000 $ 65,000 $ 16,500 $ 11,000 Interest & Other Payables 40,000 45,000 7,000 12,000 Bonds Payable 300,000 300,000 100,000 100,000 Bond Discount (3,500) (3,000) Common Stock 150,000 150,000 30,000 30,000 Additional Paid-In Capital 155,000 155,000 20,000 20,000 Retained Earnings 222,500 279,550 150,000 170,000 Total Liabilities & Equities $ 927,500 $ 994,550 $ 320,000 $ 340,000 20x8 Income Statements Pond Corporation Skate Company Sales $ 450,000 $ 250,000 Income from Skate Co. 24,450 interest Income 18,500 Total Revenue $ 492,950 $ 250,000 Cost of Goods Sold $ 285,000 $ 136,000 Other Operating Expenses 50,000 40,000 Depreciation Expense 35,000 24,000 Interest Expense 24,000 10,500 Miscellaneous Expense $ 11,900 $ 405,900 $ 9,500 $ 220,000 Net Income $ 87,050 $ 30,000 Additional Information 1. Pond sold a building to skate for $65,000 on December 31, 20x7. Pond had purchased the building for $125,000 and was depreciating it on the straight-line basis over 25 years. At the time of sale, Pond reported accumulated depreciation of $75,000 and a remaining life of 10 years. Assume Pond uses the fully adjusted equity method. 2. On July 1, 20X6, Skate sold land that had purchased for $22,000 to Pond for $35,000. Pond is planning to build a new warehouse on the property prior to the end of 20x9. 3. Skate issued $100,000, par value 10-year bonds with a coupon rate of 10 percent on January , 20X5, at $95,000. On December 31, 20X7, Pond purchases $40,000 par value of Skate's bonds for $42,800. Both companies amortize the bond premiums and discounts on a straight-line basis. Interest payments are made on July 1 and January 1. 4. Pond and Skate paid dividends of $30,000 and $10,000, respectively, in 20x8. Required a. Prepare all elimination entries needed December 31, 20X8, to complete a three-part consolidation worksheet. b. Prepare a three-part worksheet for 20X8 in good form. P8-26A Intercorporate Bond Holdings and Other Transfers Cost Accumulated Depreciation Book Value Sale Price Gain/Loss Is this an UPSTREAM or DOWNSTREAM transaction? What is the balance of Equipment on 1/1/X8? What should the balance of Equipment be on 1/1/X8? What is the balance of Accuo. Dep. on 1/1/X82 What should the balance of Accumulated Depreciation be on 1/1/X8? What is the book value of the Equipment on 1/1/X8? What was the original Useful life of the Equipment? What is the remaining useful life of the Equipment on the date of the intercompany asset transfer? What is the amount of the gain or loss on the transaction as of the date of the intercompany transfer? What was the amount of annual depreciation expense taken before the intercompany asset transfer? What is the amount of annual depreciation expense taken after the intercompany asset transfer Cost Sale price Gain/Loss Is this an UPSTREAM or DOWNSTREAM transaction? Was there a gain or loss on the intercompany asset transfer? If so, what was the amount of gain or loss? Is this an UPSTREAM or DOWNSTREAM transaction? What is the value of the intercompany bond investment on the date of the intercompany debt transfer? Is this a DIRECT or an INDIRECT transfer of debt? Was the bond investment purchased at par, a premium or a discount? What is the face value (par value) of the intercompany bond liability on the date of the intercompany debt transfer? If purchased at a premium or a discount, what was the balance of the premium or discount on the date of the intercompany debt transfer? Was the bond issued at par, a premium or a discount? If purchased at a premium or a discount, what is the amount of amortization each year? If issued at a premium or a discount, what was the balance of the premium or discount on the date of the intercompany debt transfer? What was the balance of the bond investment on 12/31/20x8? If issued at a premium or a discount, what is the amount of amortization each year? What is the amount of intercompany interest expense: What is the amount of intercompany interest income: If issued at a premium or a discount, what was the balance of the premium or discount on 12/31/20x8? What is the intercompany net bond liability on the date of the intercompany debt transfer? What is the amount of intercompany interest income/expense adjustment needed: What is the amount of the constructive gain/loss on the transaction, if any: P8-26A continued Equity Method Entries: 2 P8-26A Intercorporate Bond Holdings and Other Transfers (Straight-Line Method) 60,000 On January 1, 20X5, Pond Corporation purchased 75 percent of Skate Company's stock at underlying book value. At that date, the fair value of the noncontrolling interest was equal to 25 percent of Skate's book value. The balance sheets for Pond and Skate at January 1, 20X8, and December 31, 20X8, and income statements for 20X8 were reported as follows: 20X8 Balance Sheets Pond Corporation Skate Company January 1 December 31 January 1 December 31 Cash $ 57,600 $ 53,100 $ 10,000 $ 47,000 Accounts Receivable 130,000 176,000 65,000 Interest & Other Receivables 40,000 45,000 8,000 10,000 Inventory 100,000 140,000 50,000 50,000 Land 50,000 50,000 22,000 22,000 Buildings and Equipment 400,000 400,000 240,000 240,000 Accumulated Depreciation (150,000) (185,000) (70,000) (94,000) Investment in Skate Company: Stock 122,100 139,050 Bonds 42,800 42,400 Investment in Tin Co. Bonds 135,000 134,000 Total Assets $ 927,500 $ 994,550 $ 320,000 $ 340,000 Accounts Payable $ 60,000 $ 65,000 $ 16,500 $ 11,000 Interest & Other Payables 40,000 45,000 7,000 12,000 Bonds Payable 300,000 300,000 100,000 100,000 Bond Discount (3,500) (3,000) Common Stock 150,000 150,000 30,000 30,000 Additional Paid-In Capital 155,000 155,000 20,000 20,000 Retained Earnings 222,500 279,550 150,000 170,000 Total Liabilities & Equities $ 927,500 $ 994,550 $ 320,000 $ 340,000 20x8 Income Statements Pond Corporation Skate Company Sales $ 450,000 $ 250,000 Income from Skate Co. 24,450 interest Income 18,500 Total Revenue $ 492,950 $ 250,000 Cost of Goods Sold $ 285,000 $ 136,000 Other Operating Expenses 50,000 40,000 Depreciation Expense 35,000 24,000 Interest Expense 24,000 10,500 Miscellaneous Expense $ 11,900 $ 405,900 $ 9,500 $ 220,000 Net Income $ 87,050 $ 30,000 Additional Information 1. Pond sold a building to skate for $65,000 on December 31, 20x7. Pond had purchased the building for $125,000 and was depreciating it on the straight-line basis over 25 years. At the time of sale, Pond reported accumulated depreciation of $75,000 and a remaining life of 10 years. Assume Pond uses the fully adjusted equity method. 2. On July 1, 20X6, Skate sold land that had purchased for $22,000 to Pond for $35,000. Pond is planning to build a new warehouse on the property prior to the end of 20x9. 3. Skate issued $100,000, par value 10-year bonds with a coupon rate of 10 percent on January , 20X5, at $95,000. On December 31, 20X7, Pond purchases $40,000 par value of Skate's bonds for $42,800. Both companies amortize the bond premiums and discounts on a straight-line basis. Interest payments are made on July 1 and January 1. 4. Pond and Skate paid dividends of $30,000 and $10,000, respectively, in 20x8. Required a. Prepare all elimination entries needed December 31, 20X8, to complete a three-part consolidation worksheet. b. Prepare a three-part worksheet for 20X8 in good form. P8-26A Intercorporate Bond Holdings and Other Transfers Cost Accumulated Depreciation Book Value Sale Price Gain/Loss Is this an UPSTREAM or DOWNSTREAM transaction? What is the balance of Equipment on 1/1/X8? What should the balance of Equipment be on 1/1/X8? What is the balance of Accuo. Dep. on 1/1/X82 What should the balance of Accumulated Depreciation be on 1/1/X8? What is the book value of the Equipment on 1/1/X8? What was the original Useful life of the Equipment? What is the remaining useful life of the Equipment on the date of the intercompany asset transfer? What is the amount of the gain or loss on the transaction as of the date of the intercompany transfer? What was the amount of annual depreciation expense taken before the intercompany asset transfer? What is the amount of annual depreciation expense taken after the intercompany asset transfer Cost Sale price Gain/Loss Is this an UPSTREAM or DOWNSTREAM transaction? Was there a gain or loss on the intercompany asset transfer? If so, what was the amount of gain or loss? Is this an UPSTREAM or DOWNSTREAM transaction? What is the value of the intercompany bond investment on the date of the intercompany debt transfer? Is this a DIRECT or an INDIRECT transfer of debt? Was the bond investment purchased at par, a premium or a discount? What is the face value (par value) of the intercompany bond liability on the date of the intercompany debt transfer? If purchased at a premium or a discount, what was the balance of the premium or discount on the date of the intercompany debt transfer? Was the bond issued at par, a premium or a discount? If purchased at a premium or a discount, what is the amount of amortization each year? If issued at a premium or a discount, what was the balance of the premium or discount on the date of the intercompany debt transfer? What was the balance of the bond investment on 12/31/20x8? If issued at a premium or a discount, what is the amount of amortization each year? What is the amount of intercompany interest expense: What is the amount of intercompany interest income: If issued at a premium or a discount, what was the balance of the premium or discount on 12/31/20x8? What is the intercompany net bond liability on the date of the intercompany debt transfer? What is the amount of intercompany interest income/expense adjustment needed: What is the amount of the constructive gain/loss on the transaction, if any: P8-26A continued Equity Method Entries: 2