The balance sheets of Pam and Sun Corporations, an 80 percent-owned subsidiary of Pam, at December 31, 2016, are as follows (in thousands):

The book value of Pam's bonds reflects a $100,000 unamortized discount. The book value of Sun's bonds reflects a $20,000 unamortized premium.
REQUIRED
1. Assume that Sun purchases $2,000,000 par of Pam's bonds for $1,900,000 on January 2, 2017, 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 Pam and Sun at and for the year ended December 31, 2017.
a. Gain or loss on bond retirement
b. Interest payable
c. Bonds payable at par value
d. Investment in Pam bonds
2. Disregard 1 above and assume that Pam purchases $1,000,000 par of Sun's bonds for $1,030,000 on January 2, 2017, 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 Pam and Sun for the year ended December 31, 2017.
a. Gain or loss on bond retirement
b. Interest expense (assume straight-line amortization)
c. Interest receivable
d. Bonds payable at book value

Transcribed Image Text:

Pam Sun Assets Cash Accounts receivable-net Other current assets Plant assets-net Investment in Sun $ 2,440 3,000 8,000 15,000 6,560 $35,000 $2,500 300 1,200 5,500 Total assets S9,500 Pam Sun Liabilities and Stockholders' Equity Accounts pavable Interest pavable 10% bonds payable (due January 1, 2022) 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 S9,500