QUESTION 3 (15 marks) Peskett Products Inc. owns 75% of the common shares of Sunburst Corp. On January 1, 2017, Peskett Products issued bonds with a par value of $350,000 which will mature on January 1, 2022. The bonds bear interest at an annual rate of 8%, with annual interest payments made each December 31%. At the date of issue of the bonds, Leskett Products received proceeds of $360,000. Carrying amount for Peskett Products at January 1, 2019 was $356,434. On January 1, 2019, Sunburst Corp. purchased 30% of Deskett Products' bonds on the open market for $100,537. Both companies use the effective interest method. Both companies have a December 31st year-end and pay income taxes at a rate of 40%. Bond gains and losses are to be allocated to each company. During 2019, Sunburst Corp. earned a net income of $80,000 and paid dividends of $20,000. Market rates (Yield) for these bonds was 7.3% at January 1, 2017 (issue date) and 9.7% at January 1, 2019 (Sunburst purchased 40% of Peskett Products' bonds). a) REQUIRED:- Calculate the amount of the gain or loss that will appear as a separate item on the 2019 consolidated income statement, as a result of the bond transaction. (2 marks) [ e oh Calculate the after-tax gain or loss to Sunburst Corp. on the purchase of the Bonds. (2 marks) Calculate the after-tax gain or loss to Peskett Products on the purchase of the Bonds. (2 marks) What amount of after-tax interest expense (if any) would have to be eliminated in 2019 as a result of the purchase of the Bonds? (3 marks) = Jo What value would be shown on Peskett Products' December 31, 2019 Consolidated Balance Sheet for the Bond issue (Bonds Payable)? (3 marks) f) Calculate the non-controlling interest's share of Sunburst's Income for the year- ended Dec. 31, 2019. (3 marks) QUESTION 3 (15 marks) Peskett Products Inc. owns 75% of the common shares of Sunburst Corp. On January 1, 2017, Peskett Products issued bonds with a par value of $350,000 which will mature on January 1, 2022. The bonds bear interest at an annual rate of 8%, with annual interest payments made each December 31%. At the date of issue of the bonds, Leskett Products received proceeds of $360,000. Carrying amount for Peskett Products at January 1, 2019 was $356,434. On January 1, 2019, Sunburst Corp. purchased 30% of Deskett Products' bonds on the open market for $100,537. Both companies use the effective interest method. Both companies have a December 31st year-end and pay income taxes at a rate of 40%. Bond gains and losses are to be allocated to each company. During 2019, Sunburst Corp. earned a net income of $80,000 and paid dividends of $20,000. Market rates (Yield) for these bonds was 7.3% at January 1, 2017 (issue date) and 9.7% at January 1, 2019 (Sunburst purchased 40% of Peskett Products' bonds). a) REQUIRED:- Calculate the amount of the gain or loss that will appear as a separate item on the 2019 consolidated income statement, as a result of the bond transaction. (2 marks) [ e oh Calculate the after-tax gain or loss to Sunburst Corp. on the purchase of the Bonds. (2 marks) Calculate the after-tax gain or loss to Peskett Products on the purchase of the Bonds. (2 marks) What amount of after-tax interest expense (if any) would have to be eliminated in 2019 as a result of the purchase of the Bonds? (3 marks) = Jo What value would be shown on Peskett Products' December 31, 2019 Consolidated Balance Sheet for the Bond issue (Bonds Payable)? (3 marks) f) Calculate the non-controlling interest's share of Sunburst's Income for the year- ended Dec. 31, 2019
