Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Paulina, Incorporated, owns 80 percent of Southport Company. On January 1, 2021, Paulina acquires half of Southports $530,000 outstanding 13-year bonds. These bonds had been

Paulina, Incorporated, owns 80 percent of Southport Company. On January 1, 2021, Paulina acquires half of Southports $530,000 outstanding 13-year bonds. These bonds had been sold on the open market on January 1, 2018, at a 12 percent effective rate. The bonds pay a cash interest rate of 10 percent every December 31 and are scheduled to come due on December 31, 2030. Southport issued this debt originally for $461,910. Paulina paid $300,563 for this investment, indicating an 8 percent effective yield.

Assuming that both parties use the effective rate method, what balances should appear in the Investment in Southport Bonds account on Paulinas records and the Bonds Payable account of Southport as of December 31, 2021?

Assuming that both parties use the straight-line method, what consolidation entry would be required on December 31, 2021, because of these bonds? Assume that the parent is not applying the equity method.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Accounting questions

Question

define what is meant by the term human resource management

Answered: 1 week ago