Chapter 7 12ge

Advanc e dAc c ount i ng ,1 2 e , Gl obalEdi t i on( Be a ms mse ta l . ) Chapt e r7 I nt er c omp mpanyP r ofitTr ans ac t i ons-Bonds

7 . 1 Mul t i pl eCho i c eQue s t i o ns 1 )I ft hepr i c epa i db yapa r e n tc o mp mpa nyt oac q ui r et hede btofas ub s i di a r yi sg r e a t e rt ha nt hebo okv al ue oft hel i a bi l i t y ,a__ __ __ __oc c ur s . A)r e a l i z e dl os so nt her e t i r e me me nto fde btf r o mt hevi e wp wpoi ntoft hes ubs i di a r y B)r e a l i z e dg ai no nt her e t i r e me me ntofde b tf r om t hevi e wp wpo i nto ft hes ub s i di a r y C)c o ns t r uc t i v el o s sont her e t i r e me me ntofde b tf r o mt hevi e wp wpoi nto ft hec ons o l i da t e de nt i t y D)c o ns t r u c t i v eg ai no nt her e t i r e me me nto fde btf r om t hevi e wp wpo i ntoft hec o ns o l i da t e de nt i t y Answer :C Ob j e c t i v e :LO1 Di ffic u l t y :Ea s y

2 )I fa na ffil ffil i a t epur c ha s e sb ondsi nt heo pe nma r k e t ,t heb oo kv al ueo ft hei nt e r c o mp mpa nybo ndl i a bi l i t yat t het i meofpur c ha s ei s A)a l wa y sa s s i gne dt ot hepa r e ntc o mp mpa n yb e c a us ei tha sc o nt r o l . B)t heparval ueoft hebondsl es st heunamo mort i zeddi s countorpl ust heunamo mort i zedpr emi mi um. C)pa rv a l ue . D)t heparval ueoft hebondspl ust heunamo mort i zeddi s countorl es st heunamo mort i zedpr emi mi um. Answer :B Ob j e c t i v e :LO1 Di ffic u l t y :Ea s y

1 © 2015 Pearson Education Limited

3 )Bondsi s s ue db yac o mp mpa nyr e ma ma i no nt he i rb oo ksa sal i a bi l i t y , buta r ec ons i de r e dc ons t r uc t i v e l y r e t i r e dwhe n A)t hecomp mpanybor r ows wsmo moneyf r om unaffil ffil i at edent i t i est ore pur chasei t sownbondsatagai n. B)Thecomp mpanyborr ows wsmo moneyf r om anaffil ffil i at et or epur c hasei t sown wnbondsa tagai n. C)Thec o mp mpa n y' sp a r e n to rs ub s i di a r ypur c h a s e st heb ondsf r o mo ut s i dee nt i t i e s . D)Thecomp mpanyborr ows wsmo moneyf r om anaffil ffil i at et ore pur chas ei t sownbondsa tagai nora tal oss . Answer :C Ob j e c t i v e :LO1 Di ffic u l t y :Ea s y

Us et h ef o l l o wi ngi nf o r ma t i o nt oa ns we rt h eq ue s t i o n( s )b e l o w. Pasc al i anComp mpanyown wnsa90%i nt er es ti nSappComp mpany.OnJ anuar y1,2013,Pasc al i anhad$300, 000, 6% bondsout s t andi ngwi t hanunamo mor t i zedpr emi mi um of$9, 000. Thebondsmat ur eonDec emb mber31, 2017. S appa c q ui r e do ne t hi r do fPa s c a l i a n' sbo ndsi nt h eope nma r k e tf or$ 9 7 , 0 0 0onJ a n ua r y1 ,2 0 1 3.Bo t h c o mp mpa ni e sus es t r a i g ht l i nea mo mo r t i z a t i o no fb o nddi s c o unt s / pr e mi mi ums .I nt e r e s ti spa i do nDe c e mb mb e r3 1 . OnDe c e mb mb e r3 1 , 2 0 1 3 ,t heb oo kso ft het woa ffil ffil i a t e she l dt hef o l l o wi wi ngba l a nc e s : Pa s c a l i a n' sb oo ks 6% bondspa yabl e Pr e mi um onbonds I nt e r e s te xpe ns e

$ 300, 000 7, 200 16, 200

Sapp' sbooks I nve s t me nti nPa s c al i a nbo nds I nt e r e s ti nc ome

$97, 600 6, 600

4)Thegai nf r om t hebondpur chas et hatappear edont heDe Dec emb mber31,2013c ons ol i dat edi ncome me s t at eme mentwas A)$ 4 , 3 2 0 . B)$ 4, 8 00 . C)$ 5 , 4 0 0 . D)$ 6 , 0 0 0 . Answer :D Ex pl a na t i o n:D)Bo okv al ueofPa s c a l i a n' sbo nds acqui r edbySappequal s1/3 t i me s( $30 0, 00 0+$ 9, 000) $103, 000 Le s s : Cos tofa c qui r i ng Pas c al i anbonds (97, 000) Cons t r uc t i vegai nonbonds $6, 000 Ob j e c t i v e :LO2 Di fficul t y:Moder at e


5 )Co ns o l i da t e dI nt e r e s tEx pe ns ea ndc o ns o l i da t e dI nt e r e s tI nc o me me ,r e s pe c t i v e l y , t ha ta ppe a r e do nt he consol i dat edi ncome mes t at eme mentf ort heyearendedDec emb mber31, 2013wa was A)$10, 800and$0. B)$ 1 0, 8 0 0and$ 6 , 6 0 0. C)$0and$0. D)$ 1 6 , 2 0 0a nd$ 6 , 6 0 0 . Answer :A Ex pl a na t i o n:A)Co ns o l i da t e di nt e r e s te x pe ns e= $16 , 20 0×2 /3 $1 0, 80 0 Ob j e c t i v e :LO2 Di fficul t y:Moder at e

6 )Pr us s i aCo r po r a t i o no wn wns8 0 %t hev ot i ngs t o c ko fS t a dCo r po r a t i o n.OnJ a nua r y1 ,2 0 1 3 ,Pr us s i apa i d $ 3 9 1, 0 0 0c a s hf or$ 4 0 0, 0 0 0pa ro fS t a d' s1 0 %$ 1 , 0 0 0, 0 0 0pa rv a l ueo ut s t a ndi ngbo nds , dueo nApr i l1 ,2 0 18 . S t a d' sb ondsha dabo okv a l ueof$ 1 , 0 4 5, 0 0 0o nJ a nua r y1 ,2 0 1 3.S t r a i ght l i nea mo mo r t i z a t i oni sus e d. The g ai no rl o s so nt hec o ns t r uc t i v er e t i r e me me nto f$ 4 00 , 0 0 0ofS t a dbo ndso nJ a nua r y1 ,2 0 13wa wa sr e por t e di n t he2013cons ol i dat edi ncome mes t at eme menti nt heamo mountof A)$ 1 4 , 0 0 0 . B)$ 21 , 6 00 . C)$ 2 3, 0 0 0. D)$ 2 7 , 0 0 0 . Answer :D Ob j e c t i v e :LO2 Di fficul t y:Moder at e

Us et h ef o l l o wi ngi nf o r ma t i o nt oa ns we rt h eq ue s t i o n( s )b e l o w. Pf a dtI nc . ha d$ 6 0 0 , 0 0 0pa ro f8 %b ondspa y a bl eo ut s t a ndi ngonJ a nua r y1 , 2 0 1 3dueJ a nua r y1 ,2 0 1 7wi wi t h a nuna mo mo r t i z e ddi s c o unto f$ 1 2 , 0 0 0 .S e na ti sa9 0 % %o wn wne ds u bs i di a r yofPf a dt .OnJ a nua r y2 ,2 0 1 3 ,S e na t Co r po r a t i o npur c h a s e d$ 1 5 0 , 0 0 0pa rv a l ueo fP f a dt ' so ut s t a ndi ngb ondsf o r$ 1 5 2 , 0 0 0 .Thebo ndsh a v e i nt e r e s tpa yme ntda t e so fJ a nua r y1a ndJ ul y1 .S t r a i ght l i nea mo mor t i z at i oni sus e d. 7 )Wi t hr e s p e c tt ot hebo ndpur c h a s e , t hec o ns o l i da t e di nc o me mes t a t e me me nto fPf a dtCo r po r a t i o na nd S ub s i di a r yf o r2 0 1 3s ho we we daga i no rl o s so f A)$4 , 5 0 0 . B)$5, 0 0 0. C)$ 1 0, 8 0 0. D)$ 1 2 , 0 0 0 . Answer :B Ex pl a na t i on:B)[ ( $ 58 8, 0 00×0 . 2 5)$ 15 2, 0 00 ] Ob j e c t i v e :LO2 Di fficul t y:Moder at e


8 )BondI nt e r e s tRe c e i v abl ef or2 0 1 3o fPf a dt ' sb ondso nS e na t ' sb oo kswa s A)$ 5 , 4 0 0 . B)$ 6, 0 00 . C)$ 1 0, 8 0 0. D)$ 1 2 , 0 0 0 . Answer :B Ex pl a na t i o n:B )[ $ 1 5 0 , 0 0 0×8 % ×1 /2 ] Ob j e c t i v e :LO2 Di fficul t y:Moder at e

9 )Bo ndsP a y a bl ea ppe a r e di nt heDe c e mb e r3 1 , 2 0 1 3c o ns o l i da t e db al a nc es he e to fPf a dtCo r po r a t i o na nd Subsi di ar yi nt heamountof A)$ 3 9 8 , 9 2 5 . B)$ 4 41 , 0 0 0. C)$ 4 43 , 2 5 0. D)$ 4 5 0 , 0 0 0 . Answer :C Ex pl a na t i o n:C)[ $ 5 9 1 , 0 0 0×7 5%] Ob j e c t i v e :LO2 Di fficul t y:Moder at e

Us et h ef o l l o wi ngi nf o r ma t i o nt oa ns we rt h eq ue s t i o n( s )b e l o w. Pl e nt yCo r po r a t i o ni s s ue ds i xt ho us a nd,$ 1 , 0 0 0pa r ,6 % bo ndso nJ a nua r y1,2 0 1 2,a tpa r .I nt e r e s ti spa i d o nJ a nua r y1a n dJ ul y1ofe a c hy e a r ; t heb ondsma t ur eo nJ a nua r y1 ,2 0 1 7 .OnJ a nua r y2 ,2 0 1 4 ,S c r a wn Co r po r a t i o n,a7 5 %o wne ds u bs i di a r yo fPl e nt y , pur c h a s e d3 , 0 0 0o ft heb ondso nt heo pe nma r k e ta t 1 02 . 5 0 .Pl e nt y' ss e pa r a t ene ti nc o mef or2 0 1 4i nc l ude dt hea nnua li nt e r e s te x pe ns ef ora l l3 , 0 0 0bonds . S c r a wn' ss e pa r a t ene ti nc o mef o r2 0 1 4wa s$ 4 0 0 , 0 0 0 ,whi c hi nc l ude dt heb ondi nt e r e s tr e c e i v e do nJ ul y1 a swe l la st hea c c r ua lo fb ondi nt e r e s tr e v e nuee a r n e do nDe c e mbe r3 1 .Bo t hc o mpa ni e su s es t r a i ght l i ne amort i zat i onofbonddi s count s /pr emi ums . 10)Whatwast heamountofgai nor( l oss )f r om t hei nt er companypur chaseofPl ent y' sbondsonJ anuar y 2 ,2 0 14 ? A)$ ( 5 6 , 2 5 0) B)$ ( 7 5 , 0 00 ) C)$7 5, 0 0 0 D)$5 6 , 2 5 0 Answer :B Ex pl a na t i o n:B)T ot a lbo okva l uea c q ui r e d= $ 6 , 0 0 0 , 0 0 0×5 0 % $ 3 , 0 0 0, 0 0 0 Pur c ha s epr i c e3, 000×$1 , 025 3, 075, 000 Los sonc ons t r uc t i ver e t i r e me nt $ 75 , 00 0 Ob j e c t i v e :LO2 Di fficul t y:Moder at e


1 1 )I ft heb ondswe r eo r i gi na l l yi s s ue da t1 0 6 ,a nd8 0 %o ft he m we r epur c h a s e db yS c r a wno nJ a nua r y2 , 2 0 1 5a t9 8 , t heg ai no r( l o s s )f r o mt hei nt e r c o mpa n ypur c h a s ewa s A)$ ( 3 84 , 0 00 ) . B)$ ( 2 1 1, 2 00 ) . C)$2 1 1, 2 0 0 . D)$3 8 4 , 0 0 0 . Answer :C Ex pl a na t i o n:C)Bo okv a l uea tJ a nua r y2 ,2 0 1 5e qua l s $ 6 , 3 6 0 , 0 0 0mi nus$ 2 1 6, 0 0 0= $ 6 , 1 4 4, 0 0 0 Pe r c e nt ageofbondsac qui r e d 80% Equa l sbookval ueac qui r e d 4, 915, 200 Pur c h a s epr i c e4 , 8 0 0b onds×$ 9 8 0= 4 , 7 0 4 , 0 0 0 Gai nonc ons t r uct i ver et i r ement= $ 21 1, 20 0 Ob j e c t i v e :LO2 Di fficul t y:Moder at e

1 2 )I ft hebo ndswe r eo r i gi na l l yi s s ue da t1 0 3 ,a nd7 0 %o ft he m we r epur c h a s e do nJ a nua r y2 ,2 0 1 6a t1 0 4 , t hec o ns t r uc t i v eg ai no r( l o s s )o nt hepur c ha s ewa s A)$ ( 1 42 , 8 00 ) . B)$ (4 2 , 0 00 ) . C)$4 2 , 0 0 0. D)$1 4 2 , 8 0 0 . Answer :A Ex pl a na t i o n:A)Bo okv a l uea tJ a nua r y2 ,2 0 1 6e qua l s $ 6 , 1 8 0 , 0 0 0mi nus$ 1 4 4, 0 0 0 $ 6 , 0 3 6, 0 0 0 Pe r c e nt ageofbondsac qui r e d 70% Equa l sbookval ueac qui r e d 4, 225, 200 Pur c ha s epr i c e4 , 2 0 0bo nds×$ 1 , 0 4 0 4 , 3 6 8, 0 0 0 Lo s sonc o ns t r u c t i v er e t i r e me nt $1 4 2, 8 0 0 Ob j e c t i v e :LO2 Di fficul t y:Moder at e

1 3 )Us i ngt heo r i gi na li nf o r ma t i on,t hea mo unto fc o ns o l i da t e dI nt e r e s tEx pe ns ef or2 0 14wa s A)$1 3 5 , 0 0 0 . B)$18 0 , 0 0 0. C)$2 7 0, 0 0 0 . D)$3 6 0 , 0 0 0 . Answer :B Ex pl a na t i on:B)( $ 6, 0 00 , 0 00-$ 3, 0 00 , 0 00 )×6 % Ob j e c t i v e :LO2 Di fficul t y:Moder at e


1 4 )Us i ngt heo r i gi na li nf o r ma t i on,t heba l a nc e sf ort heBo ndsP a ya bl ea ndBondI nt e r e s tPa y a bl e a c c o unt s , r e s pe c t i v e l y , ont hec o ns o l i da t e db al a nc es h e e tf o rDe c e mb er3 1 ,2 0 1 5we r e A)$ 3 , 0 0 0, 0 0 0and$9 0 , 0 0 0. B)$ 3 , 0 0 0, 0 0 0a nd$ 1 80 , 0 0 0. C)$ 6 , 0 0 0 , 0 0 0and$9 0 , 0 0 0 . D)$ 6 , 0 0 0, 0 0 0a nd$ 1 80 , 0 0 0 . Answer :A Ex pl a na t i o n:A)Bo ndsp a y ab l e$ 6 , 0 0 0 , 0 0 0mi nusb o ndsh e l db yS c r a wno f$ 3 , 0 0 0 , 0 0 0 .I nt e r e s ta c c r ue do n De c e mb e r3 1 , 2 0 1 5wi l lb et hei nt e r e s to nb ondsh e l db yno na ffil i a t e so r$ 3 , 0 0 0 , 0 0 0×6 % ×1 /2y e a r Obj e c t i v e :LO2 ,3 Di fficul t y:Moder at e

1 5 )Us i ngt heor i gi na li nf o r ma t i on,t hee l i mi na t i o ne nt r i e so nt hec o ns o l i da t i o nwo r k i ngpa pe r spr e pa r e d o nDe c e mb e r3 1 , 2 0 1 4i nc l ude da tl e a s t A)de bi tt oBondI nt e r e s tEx pe ns ef or$ 3 60 , 0 0 0. B)c r e di tt oBondI nt e r e s tEx pe ns ef or$ 1 8 0 , 0 0 0a ndade bi tt oBo ndI nt e r e s tPa y a bl ef or$ 9 0 , 0 0 0. C)c r e di tt oBondI nt e r e s tRe c e i va bl ef or$ 1 8 0, 0 00 . D)de bi tt oBo ndI nt e r e s tRe v e nuef o r$ 3 6 0, 0 0 0. Answer :B Ob j e c t i v e :LO2 Di fficul t y:Moder at e

1 6 )Noc o ns t r u c t i v eg ai no rl o s sa r i s e sf r o mt hepur c h as eo fa na ffil i a t e ' sb ondsi ft he A)affil i at ei sa100%owneds ubsi di ar y. B)bondsar epur chase datbookval ue. C)b ondsa r epur c ha s e dwi t ha r m' s l e ngt hba r g ai ni ngf r o m out s i dee n t i t i e s . D)g ai norl os sc a nno tber e a s o na bl ye s t i ma t e d. Answer :B Ob j e c t i v e :LO1 Di ffic u l t y :Ea s y

1 7)The r ea r es e ve r a lt he or i e sf ora l l oc a t i ngc o ns t r uc t i v ega i nso rl os s e sb et we e npur c ha s i nga ndi s s ui ng affil i at es .TheAgencyTheory A)doess obas edont heparval ueoft hebondspur chase d. B)a s s i gnst hee nt i r ec o ns t r uc t i v ega i norl os st ot hepa r e ntba s e dont he i rc o nt r o loft hede c i s i ont o pur chaset hebonds . C)a s s i gnst hee nt i r ec ons t r u c t i v eg ai no rl o s st ot hes ub s i di a r yb as e do nt hene e dt oha v et he nonc o nt r o l l i ngi nt e r e s ts ha r ei nt her e t i r e me ntoft hede bt . D)a s s i gnst hee nt i r ec o ns t r uc t i v ega i no rl o s st owhi c he v e rc o mpa nyi s s ue dt heb onds . Answer :D Ob j e c t i v e :LO1 Di ffic u l t y :Ea s y


1 8 )Pi c k l eI nc o r por a t e da c q ui r e da$ 1 0 , 0 0 0bo ndo r i gi na l l yi s s ue db yi t s8 0 %o wne ds u bs i di a r yon J anuar y2,2013 .Thebondwasi s s ue di napr i orye arf or$11, 250,mat ur e sJ anuar y1,2018, andpa ys9 % i nt e r e s ta tDe c e mb e r3 1 .Thebo nd' sb oo kv al uea tJ a nua r y2 ,2 0 13i s$ 1 0 , 6 2 5,a ndPi c k l epa i d$ 9 , 5 0 0t o pur c h a s ei t .S t r a i g ht l i nea mo r t i z a t i o ni su s e db yb ot hc o mpa ni e s .Ho w muc hi nt e r e s ti nc o mes h oul db e e l i mi na t e di n2 0 1 3? A)$72 0 B)$ 8 0 0 C)$900 D)$ 1 , 0 0 0 Answer :D Ex pl a na t i o n:D)$ 9 , 5 0 0-$ 1 0, 0 0 0=di s c ountt oa mo r t i z easi nt e r e s te x pe ns eo v e r5ye a r s ,o r$ 1 00pe ry e a r +$ 9 0 0pa i db yi s s ue r . Obj e c t i v e :LO2 ,3 Di fficul t y:Moder at e

Us et h ef o l l o wi ngi nf o r ma t i o nt oa ns we rt h eq ue s t i o n( s )b e l o w. PoeCorpor at i onownsan80% i nt er es ti nSer iCompanyacqui r edatbookval ues ever alyear sago.On J anuar y2,2013 ,Se r ipur c has e d$100, 000pa rofPoe ' sout s t andi ng10% bondsf or$103, 000.Thebonds we r ei s s ue da tpa ra ndma t ur eonJ a nua r y1,2 0 1 6.S t r a i ght l i nea mo r t i z a t i oni sus e d.S e pa r a t ei nc o me so f P oea ndS e r if or2 0 1 3a r e$ 3 50 , 0 0 0a nd$ 1 2 0, 0 0 0 ,r e s p ec t i v e l y .P oeus e st hee qui t yme t ho dt oa c c o untf or t hei n ve s t me nti nS er i . 1 9 )Co nt r o l l i ngi nt e r e s ts h ar eofc o ns o l i da t e dne ti nc o mef o r2 01 3wa s A)$ 4 4 3 , 6 0 0 . B)$ 4 44 , 0 0 0. C)$ 4 44 , 4 0 0. D)$ 4 4 8 , 0 0 0 . Answer :B Ex pl a na t i on:B)Poe ' ss e pa r at ei nc ome $350 , 000 I nc omef r om Se r i( $ 120, 000×80 %) 96 , 000 Les s :Los sonc ons t r uct i ver e t i r ementofPoebonds ( 3, 00 0) Pl us : Pi e c e me a lr e c ogni t i onoft he c ons t r uc t i vel os s( $3, 0 00/3ye a r s ) 1 , 000 Cont r ol l i ngi nt e r e s ts ha r e $444 , 000 Ob j e c t i v e :LO4 Di fficul t y:Moder at e

2 0 )Nonc o nt r o l l i ngi nt e r e s ts h ar ef o r2 01 3wa s A)$ 2 3 , 0 0 0 . B)$ 23 , 6 00 . C)$ 2 4, 0 0 0. D)$ 2 4 , 4 0 0 . Answer :C Ex pl a na t i on:C)Si nc ePoei st hei s s ui nge nt i t y ,t hega i norl os si snota l l oc a t e dt ot henonc ont r o l l i ng i nt e r e s t .Thenonc o nt r o l l i ngi nt e r e s ts ha r ei s( $ 12 0 , 0 0 0×2 0%)=$ 2 4, 0 0 0. Ob j e c t i v e :LO4 Di fficul t y:Moder at e 7 © 2015 Pearson Education Limited

7 . 2 Ex er c i s e s 1 )S e pa r a t ec o mpa n ya ndc o ns o l i da t e di nc o mes t a t e me nt sf o rPi t t aa ndS oj o ur nCo r po r a t i o nsf o rt hey e a r endedDec ember31, 2013ar es ummar i zedasf ol l ows :

Sal e sRe ve nue I nc omef r om S oj our n Bondi nt e r e s ti nc ome Gai nonbondr e t i r e me nt Tot alr e ve nue s Cos tofs al e s Bondi nt e r e s te xpe ns e Ot he re xpe ns e s Tot ale xpe ns e s Cons ol i dat e dne ti nc ome Nonc ont r ol l i ngi nt e r e s ts har e Separ at eneti ncomeand Cont r o l .i nt e r e s ts ha r ei n c ons ol i da t e dne ti nc ome

Pi t t a $500, 000 19, 900

Souj our n $10 0, 0 00

Cons ol i dat ed $600, 000

6, 0 00 3, 000 603, 000

519, 900

10 6, 0 00

$280, 000 9, 000 120, 900 409, 900

$5 0, 0 00 3 1, 0 00 8 1, 0 00

$330, 000 3, 600 151, 900 485, 500 117, 500 7 , 50 0

$110, 000

$2 5, 0 00

$110, 000

Thei nt e r e s ti nc o mea nde x pe ns ee l i mi na t i o nsr e l a t et oa$1 0 0, 0 0 0,9 %b ondi s s uet ha twa si s s ue da tpa r val ueandmat ur esonJ anuar y1,2018. OnJ anuar y2,2013, aport i onoft hebondswaspur chase dand c ons t r uc t i ve l yr e t i r e d. Re q ui r e d:Ans we rt hef o l l o wi ngque s t i o ns . 1. Whi c hc ompanyi st hei s s ui ngaffil i at eoft hebondspayabl e? 2 . Wha ti st heg a i no rl o s sf r o mt hec o ns t r uc t i v er e t i r e me nto ft heb ondsp a ya bl et ha ti sr e po r t e do nt he c o ns o l i da t e di nc o mes t a t e me ntf o r2 0 1 3 ? 3. Whatpor t i onoft hebondspayabl ei shel dbynonaffil i at esatDec ember31, 2013? 4. I sSoj our nawhol l yowneds ubsi di ar y?I fnot ,whatper ce nt agedoesPi t t aown? 5 . Do e st hepur c ha s i nga ffil i a t eus es t r a i ght l i neore ffe c t i v ei nt e r e s ta mor t i z a t i o n? 6 . Ex pl a i nt hec a l c u l a t i o no fP i t t a ' s$ 1 9 , 9 0 0i nc o mef r o mS oj o ur n. Ans we r :1. Pi t t ai st hei s s ui nga ffil i at e . 2. Effec tonconsol i dat edneti ncome: Gai nonc ons t r uc t i ver e t i r e me ntofbonds

$3, 000

3. Per ce ntofbondshel dbynonaffil i at esatDec ember31,2013i s40%,comput edas$3, 600c ons ol i dat ed i nt e r e s te x pe ns edi vi de db y$ 9, 0 00i nt e r e s te xpe ns eofPi t t a . 4 . S oj o ur ni spa r t i a l l yowne da se vi de nc e dbyt hen onc o nt r o l l i ngi nt e r e s ts ha r e .Theo wne r s h i p pe r c e nt a gei s7 0 %( $ 7 , 5 0 0no nc o nt r ol l i ngi nt e r e s ts h a r edi vi de db y$ 2 5, 0 0 0i nc o meo fS oj our n=3 0 % nonc ont r ol l i ngi nt e r e s t . )


5 . S t r a i g ht l i nea mo r t i z a t i o n $100, 000par×6 0% pur c ha s e d Pur c ha s epr i c e5ye ar sbe f or emat ur i t y Gai n

$60, 000 57, 000 3, 000

Nomi na li nt e r e s t( $60, 000×9%) Di s c ounta mor t i zat i on( $3, 000/5ye a r s ) Bondi nt e r e s ti nc ome

$5, 400 600 $6, 000

6. Pi t t a' si ncomef r om Soj our n S ha r eofS oj o ur n' sr e po r t e di nc o me ( $ 25, 000×70 %)= Add:Cons t r uc t i vega i n Le s s : Pi e c e me a lr e c o gni t i onofc o ns t r uc t i v e gai n I nc omef r om Soj our n

$17, 500 3, 000 ( 60 0) $19, 900

Obj e c t i v e:LO1 ,2 ,4 Di fficul t y:Moder at e


2 )Pl a t t sI nc o r p or a t e dpur c h a s e d8 0 %o fS c a r a bCo mpa n ys e v e r a l y e a r sa g owhe nt hef a i rv a l uee q ua l e d t heb oo kv a l ue . OnJ a nua r y1 ,2 0 1 3 ,S c a r a bha s$ 1 0 0 , 0 0 0of8 %b ondst ha twe r ei s s ue da tf a c ev a l uea nd ha v efiv eye a r st oma t ur i t y . I nt e r e s ti sp ai da nnua l l yo nDe c e mb e r3 1 .Bo t hPl a t t sa n dS c a r a bwo ul dus e t hes t r a i g ht l i neme t ho dt oa mo r t i z ea nypr e mi um o rdi s c o unti nc u r r e di nt hei s s ua nc eo rpur c h a s eof bonds .OnJ a nuar y1,20 14,Pl a t t spur c has e dal lofSc ar ab' sbondsf or$96 , 00 0. Requi r ed: 1 . Pr e pa r et hej o ur na le nt r i e si n2 0 1 4t ha two ul db er e c o r de db yPl a t t sa n dS c a r a bo nt he i rs e pa r a t e fina nc i a lr e c o r ds . 2 . Pr e pa r et hec o ns o l i da t i ngwo r k i ngpa pe re nt r i e sr e q ui r e df o rt hey e a re ndi ngDe c e mb e r3 1 , 2 0 1 4 . Answer : Requi r ement1: Pl at t se nt r i e s : 1/1 /1 4 I nve s t menti nbonds $96, 000 Ca s h $96 , 000 12/31 /14 Cas h I nt e r e s ti nc ome

8, 000

I nve s t me nti nbonds I nt e r e s ti nc ome

1, 000

8 , 000

1 , 000

Sc a r a be nt r i e s : 12/31 /14 I nt e r e s te xpe ns e Ca s h Requi r ement2: Cons o l i da t i nge nt r i e s : 12/31 /14 Bondspa yabl e I nve s t me nti nbonds Ga i nonr e t i r e mentofde bt I nt e r e s ti nc ome I nt e r e s te xpe ns e Ga i nonr e t i r e mentofde bt

8, 000 8 , 000

100, 000 97 , 000 3 , 000 9, 000 8 , 000 1 , 000

Obj e c t i v e :LO2 ,3 Di fficul t y:Moder at e


3)PakaCorpor at i onownsan80% i nt er es ti nSandr aCompany.Pakaac qui r edSandr a' sbondsonJ anuar y 2 ,2 0 1 4.Thef o l l o wi ngi nf o r ma t i o ni sf r om t hea dj us t e dt r i a lb al a nc e sa tDe c e mbe r3 1 ,2 0 14 ,a twhi c ht i me t hebo ndsh a vet hr e ey e a r st oma t ur i t y . Thebo ndsh a vei nt e r e s tpa y me ntda t e so fJ a nua r y1a ndJ ul y1 . S t r a i ght l i nea mo r t i z a t i o ni sus e db yb ot hc o mpa ni e s .

I nv e s t me nti nSa ndr aBonds ,$100, 000par 7% Bondspa yabl e ,$200, 000 Bondpr e mi um I nt e r e s te xpe ns e I nt e r e s tr e c e i vabl e I nt e r e s ti nc ome I nt e r e s tpa yabl e

Paka 98, 500

Sandr a 200 , 000 6 , 000 12 , 000

7, 000 7, 500 7 , 000

Requi r ed: Pr e pa r et hene c e s s a r yc o ns o l i da t i o nwo r k i ngpa pe re nt r i e so nDe c e mb e r3 1 ,2 0 1 4wi t hr e s pe c tt ot he i nt er c ompanybonds . Ans we r :2 014 De bi t Cr e di t 12/31 BondI nt e r e s tPa yabl e 7, 000 BondI nt e r e s tRe c e i va bl e 7, 000 12/31 BondsPa yabl e 100, 000 I nt e r e s tI nc ome 7, 500 Bondpr e mi um 3, 000 I nt e r e s tExpe ns e( 50% owne d) 6, 000 I nve s t me nti nSandr a' sBonds 98, 500 Gai nonr e t i r e me ntofbonds 6, 000 Suppor t i ngComput at i ons : Cos tofbondst oPaka( $ 98, 500-$50 0) Bookval ueac qui r ed1/1/2014wher e $ 2, 0 00pe ry e a ri sa mor t i z e d ( $200, 000+$ 8, 0 00)×50% = Gai nonc ons t r uc t i vebondr e t i r e ment

$98, 000

104, 000 $6, 000



4)Pheas antCorpor at i onowns80% ofSalCorpor at i on' sout s t andi ngcommons t ockt hatwaspur chase dat bookval uee qualt of a i rval ueonJ anua r y1,2 007. Addi t i ona li nf or ma t i on: 1 . Phe a s a nts o l di n ve nt or yi t e mst ha tc o s t$ 3 , 0 0 0t oS aldur i ng2 0 1 4f or$ 6 , 0 0 0 .One ha l fo ft hi s me r c h a ndi s ewa si n ve nt o r i e db yS a la ty e a r e nd.AtDe c e mb e r3 1 , 2 0 1 4 ,S a lo we dPhe a s a n t$ 2 , 0 0 0on a c c o untf r om t hei n ve nt or ys a l e s . Noot he ri nt e r c o mpa nys a l e so fi n ve nt or yha v eoc c u r r e ds i nc eP he a s a nt a c qui r e di t si nt e r e s ti nSa l . 2 . Phe a s a n ts o l de q ui pme ntwi t hab oo kv a l ueo f$ 5 , 0 0 0a nda5 y e a ru s e f ull i f et oSa lf o r$ 1 0 , 0 0 0on De c e mb e r3 1 ,2 0 1 2 .Thee qui pme ntr e ma i nsi nus eb ySa la ndi sd e pr e c i a t e db yt hes t r a i g ht l i neme t ho d. Thee qui pmenthasnosal vageval ue. 3 . OnJ a nua r y2 ,2 0 1 4 ,S a lpa i d$ 1 0 , 8 0 0f o r$ 1 0 , 0 0 0pa rv a l ueofPhe a s a n t ' s1 0 y e a r ,1 0 %b onds . The s e bondswe r eor i gi nal l ys ol datpa rval ue ,andha vei nt e r e s tpa yme ntda t e sofJ anuar y1andJ ul y1,a nd ma t ur eo nJ a nua r y1 ,2 0 18 .S t r a i ght l i nea mor t i z a t i onha sb e e na ppl i e db yS alt ot hePhe a s a ntb ond i n ve s t me nt . 4 . Phe a s a n tus e st hee q ui t yme t ho di na c c o unt i ngf o ri t si n ve s t me nti nS a l . Requi r ed: Co mpl e t et hewo r k i ngpa pe r st oc ons o l i da t et hefina nc i a ls t a t e me nt so fPhe a s a n tCo r po r a t i o na ndS a lf o r t heyeare ndedDec ember31, 2014.



Answer :

Obj e c t i v e :LO2 ,3 Di fficul t y:Di fficul t


5 )Pha unapa i d$ 1 2 0 , 0 0 0f o ri t s8 0 %i nt e r e s ti nS c hr ubo nJ a nua r y1 ,2 0 1 1whe nS c hr ubha d$ 1 5 0 , 0 0 0of t ot a ls t oc khol de r s ' e qui t y . OnJ a nua r y1 ,2 0 1 4 ,Pha unapur c h a s e d$ 5 0 , 0 0 0o fS c hr ubCo r po r a t i o n' s8 %b ondsf o r$ 4 8 , 0 0 0 .Att ha t t i me, $100, 000ofbondshadbeeni s s uedbySchr ub,andunamor t i zedpr emi um was$ 2, 000. Thebonds payi nt er es tonJ une30andDec ember31andmat ur eonDec ember31, 2018. Bot hPhaunaandSchr ubus e s t r a i ght l i nea mo r t i z a t i on.Pha unaus e st hee qui t yme t ho do fa c c o unt i ngf o ri t si n ve s t me nti nS c hr u b. Requi r ed: Pr e pa r ee l i mi na t i ng/a dj us t i nge nt r i e sf ort heb ondso nt hec o ns o l i da t i ngwo r kpa pe r sf o rt hey e a re n de d Dec ember31, 2014. Answer :12/31/2014 I nt e r e s ti nc o me( 8 % ×$ 5 0, 0 0 0)+( $ 2 , 0 0 0/5 )4 , 4 0 0 I nt e r e s te x pe ns e ( 8 % ×$ 5 0, 0 00 )-( $ 1 , 0 0 0/5 ) 3 , 8 00 Gai nonr e t i r e me ntofbonds 600 Bondspa yabl e Pr e mi um onbondspa ya bl e Bondi nve s t me nt Gai nonr e t i r e mentofbonds

5 0, 00 0 80 0 48, 400 2, 400

Pr emi um onbondspaya bl e: $ 1 , 0 0 0-$ 1 , 0 0 0 /5=$ 8 0 0 Bondi nves t ment : $ 4 8 , 0 0 0+$ 2 , 0 0 0 /5=$ 4 8, 4 0 0 Support i ngcomput at i ons : Bookval ueofbonds ( $10 2, 0 00×50%) Cos tofa c qui r i ng$5 0, 00 0par Cons t r uc t i vega i n Pi e c e me alr e c ogni t i onofgai n Unr e c ogni ze datDe c e mbe r31,2 014

$ 51, 0 00 ( 4 8, 0 00) 3, 0 00 ( 6 00) $2, 4 00

Obj e c t i v e :LO2 ,3 Di fficul t y:Di fficul t


6)Pel amiCorpor at i onownsa90% i nt er es ti nSunbi r dCorpor at i on.AtDec ember31, 2012, Sunbi r dhad $3, 000, 000ofparval ue6% bondsout s t andi ngwi t hanunamort i zedpr emi um of$30, 000. Thebondshave i nt e r e s tpa y me ntda t e so fJ a nua r y1a ndJ ul y1andma t ur eo nJ a nua r y1 ,2 0 1 7 . OnJ a nua r y2 ,2 0 1 3,P el a mipur c h as e d$ 1 , 2 0 0, 0 0 0pa rv a l ueofS unb i r d' so ut s t a ndi ngb ondsf or$ 1 , 2 1 0 , 0 0 0 . As s umes t r a i ght l i neamo r t i z a t i on. Requi r ed: Pr e pa r et hen e c e s s a r yc ons o l i da t i o nwo r k i ngpa pe re nt r i e swi t hr e s p ec tt ot hei nt e r c ompa nybondsf or t heyearendi ngDec ember31,2013. Ans we r :2 013 De bi t Cr e di t 12/31 BondI nt e r e s tPa yabl e 36, 000 BondI nt e r e s tRe c e i vabl e 36, 000 12/31 Pr e mi um onBo ndsPa yabl e 9, 000 BondsPa yabl e 1, 200, 000 I nt e r e s tRe ve nue 69, 500 I nt e r e s tExpe ns e I nve s t me nti nSunbi r dBonds Ga i nonRe t i r e me ntofBonds

69, 000 1, 207, 500 2, 000

Suppor t i ngComput at i ons : Cos tofbondst oPe l ami Bookval ueacqui r ed ( $3, 000 , 000+$30, 000)×40 %= Gai nonc ons t r uc t i vebondr e t i r e me nt 4y e a r sr e ma i ni ng Pr emi um onBondPa ya bl e $ 30, 0 00×3 /4×4 0% =

$1, 210, 000 1, 212, 000 $2, 000

$9 , 00 0

I nt e r e s tEx pe ns e $ 1, 20 0, 00 0×6% = $72 , 00 0 Le s s :$ 30, 000×1 /4×4 0% = $ 3 , 00 0 $69 , 0 0 0 I nt e r e s tRe v e nue $72 , 000-( $ 10, 000×1 /4) = $69 , 50 0 Obj e c t i v e :LO2 ,3 Di fficul t y:Moder at e


7 )S po t ti sa7 5 %o wne ds u bs i di a r yofP ent ha l .OnJ a nua r y1,2 0 1 3,S po t ti s s ue d$ 9 00 , 0 0 0o f$ 1 , 0 0 0f a c e amount8% bondsatpar .Thebondshavei nt er es tpayment sonJ anuar y1andJ ul y1ofeac hyearand ma t ur eo nJ a nua r y1 ,2 0 1 7 .OnJ ul y2 ,2 0 1 4 ,P e nt ha lpur c h a s e da l l9 0 0bo ndso nt heo pe nma r k e tf o r$ 1 , 0 2 0 pe rbo nd.Bo t hc o mpa ni e sus es t r a i ght l i nea mo r t i z a t i o n. Re qui r e d:Wi t hr e s p ec tt ot h ebonds , us eGe ne r a lJ our n a lf o r ma tt o : 1. Rec or dt he2014j our nalent r i esf r om J ul y1t oDec ember31onSpot t ' sbooks. 2. Rec or dt he2014j our nalent r i esf r om J ul y1t oDec ember31onPent hal ' sbooks. 3 . Re c o r dt hee l i mi na t i o ne nt r i e sf o rt hec o ns o l i da t i o nwo r k i ngpa pe r sf o rt hey e a re ndi ngDe c e mb e r3 1 , 2014. Answer : Requi r ement1 Dat e 201 4 Ac c ountName De bi t Cr e di t S po t t ' sbooks J ul01 BondI nt e r e s tExpe ns e 36, 000 Cas h( $90 0, 00 0×8% ×½) 36, 0 00 De c31

BondI nt e r e s tExpe ns e BondI nt e r e s tPa yabl e

36, 000 36, 0 00

Requi r ement2 P ent ha l ' sb oo ks J ul02 I nve s t me nti nSpot tBonds Cas h Dec31

BondI nt e r e s tRe c e i vabl e BondI nt e r e s tRe ve nue I nve s t me nti nSpot tBonds

Requi r ement3:Cons ol i dat edWor ki ngPaper s De c31 BondI nt e r e s tPa yabl e BondI nt e r e s tRe c e i vabl e De c31

BondsPa yabl e Los sonBonds BondI nt e r e s tRe ve nue BondI nt e r e s tExpe ns e I nve s t me nti nSpot tBonds

918, 000 9 18, 0 00 36, 000 32, 4 00 3, 6 00

36, 000 36, 0 00 900, 000 18, 000 32, 400 36, 0 00 9 14, 4 00

I nt e r e s tRe v e nue : ( $900, 000×8% ×1/2)-( $18, 000pr emi um/5per i ods )=$32, 400 Obj e c t i v e :LO2 ,3 Di fficul t y:Moder at e


8 )S na c k l eI nc . i sa9 0 %o wne ds u bs i di a r yofP as h aCo r p. OnJ a nua r y1 ,2 0 1 3 ,S na c k l ei s s ue d$ 4 0 0 , 0 0 0of $ 1 , 0 0 0f a c ea mo unt8 %b ondsa t$ 9 6 4pe rb ond.I nt e r e s ti sp a i do nJ a nua r y1a ndJ ul y1o fe a c hy e a ra nd c o v e r st hepr e c e d i ngs i xmo nt hs . OnJ ul y2,2 0 1 4 ,Pa s h apur c h a s e da l l4 0 0bo ndso nt heo pe nma r k e tf o r $ 1 , 0 3 0pe rb ond.Theb ondsma t ur eo nDe c e mb e r3 1 , 2 0 1 5 .Bo t hc o mpa ni e su s es t r a i ght l i nea mo r t i z a t i o n. Re qui r e d:Wi t hr e s p ec tt ot heb onds , us eGe ne r a lJ our n a lf o r ma tt o : 1. Rec or dt he2014j our nalent r i esf r om J ul y1t oDec ember31onPasha' sbooks. 2. Rec or dt he2014j our nalent r i esf r om J ul y1t oDec ember31onSnackl e' sbooks. 3 . Re c o r dt hee l i mi na t i o ne nt r i e sf o rt hec o ns o l i da t i o nwo r k i ngpa pe r sf o rt hey e a re ndi ngDe c e mb e r3 1 , 2014. Answer :Dat e 201 4 Ac c ountNa me De bi t Cr e di t P as h a ' sb oo ks J ul02 I nve s t me nti nSnac kl eBonds 412, 000 Cas h 412, 000 Dec31

BondI nt e r e s tRe c e i va bl e BondI nt e r e s tRe ve nue I nve s t menti nSnac kl eBonds

S na c k l e ' sbo oks J ul01 BondI nt e r e s tExpe ns e Cas h Di s c ountonBondsPa yabl e De c31

BondI nt e r e s tExpe ns e BondI nt e r e s tPa ya bl e Di s c ountonBondsPa yabl e

Cons ol i dat edWor ki ngPaper s De c31 BondI nt e r e s tPa ya bl e BondI nt e r e s tRe c e i vabl e De c31

BondsPa yabl e Los sonBonds BondI nt e r e s tRe ve nue BondI nt e r e s tExpe ns e Di s c ountonBondsPa yabl e I nve s t me nti nSnac kl eBonds

16, 000 12, 000 4, 000

18, 400 16, 000 2, 400 18, 400 16, 000 2, 400

16, 000 16, 000 400, 000 19, 200 12, 000 18, 400 4, 800 408, 000

( Boo kv al ueo fbo nds$ 3 9 2 , 8 0 0-pur c h as ec o s t$ 4 1 2, 0 0 0=$ 1 9 , 2 0 0l o s s ) Obj e c t i v e :LO2 ,3 Di fficul t y:Moder at e


9)Popcor nCorpor at i onowns90% oft heout s t andi ngvot i ngcommons t ockofSal t yCorpor at i on. On J anuar y1,2009 ,Sa l t yi s s ue d$ 1, 0 00, 0 00f ac eamountof12%,$ 1, 00 0bondspa ya bl eat1 19. 20.Thebonds pa yi nt e r e s to nJ a nua r y1a ndJ ul y1ofe a c hye a ra ndma t ur eo nJ a nua r y1 ,2 0 1 7 .OnJ ul y2 ,2 0 1 4 ,P opc o r n pur c ha s e da l lo ft heout s t a ndi ngb ondsa tapr i c eof1 0 7. 5 0 .Bo t hc o mpa ni e sus es t r a i ght l i nea mo r t i z a t i o n. Requi r ed: 1 . Pr e pa r et hej o ur na le nt r i e sf o rJ ul y1,2 0 1 4t hr o ug hDe c e mb e r3 1 , 2 0 1 4f o rP opc o r nCo r po r a t i o n. 2 . Pr e pa r et hej o ur na le nt r i e sf o rJ ul y1 ,2 0 1 4t hr o ug hDe c e mb e r3 1 ,2 0 1 4f o rS a l t yCo r po r a t i o n. 3 . Pr e pa r et hee l i mi na t i o ne nt r i e sne c e s s a r yo nt hec o ns o l i da t i ngwo r k i ngpa pe r sf o rt hey e a re n de d Dec ember31, 2014. Answer : Requi r ement1 J ul y2,2 014: Bondi nve s t me nt 1, 075, 000 Cas h 1, 075, 000 Dec ember31, 2014: I nt e r e s tr e c e i vabl e I nt e r e s tr e ve nue ( $1, 000, 000×12% ×1/2) I nt e r e s tr e ve nue Bondi nve s t me nt ( $ 7 5, 0 0 0/5 ) Requi r ement2 J ul y1,2 014: I nt e r e s te xpe ns e Cas h Pr e mi um onbondspa ya bl e I nt e r e s te xpe ns e Dec ember31, 2014: I nt e r e s tr e c e i vabl e I nt e r e s tr e ve nue ( $1, 000, 000×12% ×1/2) Pr e mi um onbondspa ya bl e I nt e r e s te xpe ns e

60, 000 60, 000

15, 000 15, 000

60, 000 60, 000 12, 000 12, 000

60, 000 60, 000

12, 000 12, 000


Requi r ement3: Dec ember31, 2014: Bondspa yabl e Pr e mi um onbondspa ya bl e Los sonr e t i r e mentofbonds Bondi nve s t me nt Bondi nv es t me nt : ( $ 1, 0 7 5, 0 0 0-$ 1 5, 0 0 0)

1, 000, 000 48, 000 12, 000 1, 060, 000

Los sonr e t i r e me ntofbonds I nt e r e s tr e ve nue I nt e r e s te xpe ns e

3, 000 45, 000

I nt e r e s tpa yabl e I nt e r e s tr e c e i vabl e

60, 000

48, 000

60, 000

J ul y2,2 014 Pai d $1, 0 75, 000 Bookval ueofbonds 1, 060, 000[ $1, 000, 000+( $12, 000×5) ] Los sonr e t i r e ment $1 5, 00 0 Obj e c t i v e :LO2 ,3 Di fficul t y:Moder at e


1 0 )P e t e rCo r po r a t i o no wnsa7 0 %i nt e r e s ti nS undo wnCo r po r a t i o na c q ui r e ds e v e r a ly e a r sa goa tapr i c e equalt obookval ueandf ai rval ue. OnDec ember3 1, 2013, Sundownhad$300, 000parof6% bonds out s t andi ngwi t hanunamort i zedpr emi um of$30, 000.Thebondsmat ur ei nfiveyear sandpayi nt er es ton J anuar y1a ndJ ul y1 .OnJ anuar y2,2014 ,Pe t e rac qui r e done t hi r dofSundown' sbondsf or$11 7, 00 0.Pe t e r a ndS undo wnus es t r a i g ht l i nea mo r t i z a t i o n.S undo wnr e po r t sn e ti nc o meof$ 2 5 0 , 0 0 0f o r2 0 1 4 .P e t e ru s e s t hee q ui t yme t ho dt oac c o untf o rt hei n ve s t me nt . Requi r ed: 1. Cal c ul at ePet er ' si ncomef r om Sundownf or2 014. 2 . Ca l c ul a t et henonc o nt r ol l i ngi nt e r e s ts h a r ef or2 0 1 4 . Ans wer :Pr el i mi nar yc omput at i ons: Bookval ueofbonds$33 0, 00 0×1/3= $1 10, 0 00 Cos tofbonds 1 17, 0 00 Los sonc ons t r uc t i ver e t i r e ment $7, 0 00 Requi r ement1: I nc omef r om Sundown: Sha r eofSundo wn' si nc ome( $250, 000×7 0%) Le s s :Cons t r uc t i vel os s( $7, 000×7 0%) Pl us : Pi e c e me a lr e c ogni t i onofl os s ( $7, 000/5ye ar s )×70% I nc omef r om Sundown

$1 75, 0 00 ( 4, 900) 9 80 $1 71, 0 80

Requi r ement2: Nonc o nt r o l l i ngi nt e r e s ts ha r e : Sundown' sr e por t e di nc ome Le s s :Cons t r uc t i vel os sonbonds Pl us :Pi e c e me a lr e c ogni t i onofl os s Equal s :Adj us t e dr e por t e di nc ome Nonc ont r ol l i ngpe r c e nt age Nonc ont r ol l i ngi nt e r e s ts har e

$2 50, 0 00 ( 7, 000) 1, 4 00 $2 44, 4 00 3 0% $ 73, 3 20



11)PongoCompanyhas$2, 000, 000of6% bondsout s t andi ngonDec ember31, 2013wi t hunamor t i zed pr emi um of$60, 000.Thesebondspayi nt er es ts emi annual l yonJ anuar y1andJ ul y1andmat ur eon J anuar y1,2019 .St r ai ght l i neamor t i za t i oni sus e d. S yr i ngI nc . ,9 0 %o wne ds u bs i di a r yofP ong o,b uys$ 1 , 0 0 0 , 0 0 0pa rv a l ueo fP o ng o' so ut s t a ndi ngb ondsi n t hema r ke tf o r$ 9 8 0, 0 0 0onJ a nua r y2 ,2 0 14 .The r ei so nl yonei s s ueo fout s t a ndi ngbo ndso ft hea ffil i a t e d c o mpa ni e sa ndt he yha v ec o ns o l i da t e dfina nc i a ls t a t e me nt s . F ort heye a r2 0 1 4 , P ongoha si nc o mef r o mi t ss e pa r a t eope r a t i o ns( e x c l udi ngi n ve s t me nti nc o me )o f $ 3 , 0 0 0 , 0 0 0andS yr i ngr e po r t sn e ti nc o meof$ 2 0 0 , 0 0 0 .P ong ous e st hee qui t yme t ho dt oa c c o untf o rt he i n ve s t me nt . Re qui r e d: De t e r mi net hef o l l o wi ng: 1 . No nc o nt r o l l i ngi nt e r e s ts h a r ef o r2 0 1 4 . 2. Cont r ol l i ngshareofconsol i dat edneti ncomef orPongoCompanyands ubsi di ar yf or2014. Answer :Requi r ement1 Nonc o nt r o l l i ngi nt e r e s ts ha r e ( $200 , 00 0×10%) $20, 000 Requi r ement2 Cont r o l l i ngi nt e r e s ts ha r eo fc o ns o l i da t e dne ti nc o me : I nc omef r om Pongo' sope r a t i ons I ncomef r om Syri ng: Pongo' ss hareofSyri ngi ncome=90% × $20 0, 0 00 $ 180, 000 Add:Cons t r uct i vegai nonbond r e t i r e me nt( $ 2 , 0 0 0, 0 0 0+$ 6 0, 0 0 0)×5 0 %980 , 00 0 50, 000 Le s s : Pi e c e me a lr e c o gni t i onofga i n= $50 , 00 0/5ye a r s ( 1 0, 00 0) Cont r ol l i ngi nt e r e s ts ha r e

$3, 000, 000

2 20 , 0 00 $3, 220, 000



12)Pachel orCorpor at i onowns70%oft heout s t andi ngs t ockofSt abbCompany.OnJ anuar y1, 2013, S t a b bi s s ue d$ 1 , 0 0 0 , 0 0 0i n7 %b ondst ha tma t ur e do nJ a nua r y1 ,2 0 1 8 .Att het i meofi s s ua nc e , t heb onds we r es ol da tadi s c ountof$ 1 25 , 0 0 0.AtJ a nua r y2 ,2 0 15 ,Pa c he l orp ur c ha s e dt hebo ndsf o r$ 1 , 4 0 0, 0 0 0,a nd c ons t r uc t i ve l yr e t i r e dt hede bt .I nt e r e s ti spa i da nnua l l yonJ a nua r y1 .S t r a i ght l i nea mor t i z at i oni sus e d bybot hc ompa ni e s . Requi r ed: 1 . Ca l c ul a t et hega i norl os st ha tt hec o ns o l i da t e de nt i t yi nc ur r e dt or e t i r et hede bt . 2 . Pr e pa r ee l i mi na t i ng /a dj us t i nge nt r i e sf o rt hec o ns o l i da t i ngwo r kpa pe r sf o rt hey e a re nde d Dec ember31, 2015. Answer :Requi r ement1: Bo okv a l ueo fb ondsa tt i meo fr e t i r e me nt= ( $1, 000, 000-$125, 000+[ ( $125, 000/5year s )×2] )= $925, 000 Pur c h as epr i c eo fb onds= 1 , 4 0 0 , 0 0 0 Cons t r uc t i vel os sonr e t i r e me ntofbonds $475 , 000 Requi r ement2: Dec ember31, 2015: I nt e r e s tpa yabl e I nt e r e s tr e c e i vabl e ( $ 1 , 0 0 0 , 0 0 0×7 %)

70, 000 70, 000

Los sonr e t i r e me ntofbonds 316, 667 Bondspa yabl e 1, 000, 000 Di s c ountonbondspa yabl e Bondi nve s t me nt ( Bondi n ve s t me nt :$ 1 , 4 0 0 , 0 0 0-$ 4 00 , 0 0 0 /3 ) ( Bo nddi s c o unt :$ 2 5 , 0 0 0×2 )

50, 000 1, 266, 667

Lo s so nr e t i r e me nto fb onds 1 5 8 , 3 3 3 I nt e r e s te xpe ns e 95, 000 I nt e r e s ti nc ome 63, 333 I nt e r e s te x pe ns e : [ ( $ 1 , 0 0 0 , 0 0 0×7 %)+$ 1 2 5, 0 0 0 /5 ]=$ 7 0, 0 0 0+$ 2 5, 0 0 0=$ 9 5 , 0 0 0 I nt e r e s ti nc o me : ( $ 40 0, 0 00 /3 )-( $ 1, 0 00 , 0 00×7%)=$ 13 3 , 3 33-$ 7 0, 0 0 0=$ 63 , 3 3 3( De bi tba l a nc e ) Obj e c t i v e :LO2 ,3 Di fficul t y:Moder at e


13)PadmaCorpor at i onowns70% oft heout s t andi ngs t ockofSomegaCompany. OnJ anuar y1,2012, S ome g ai s s ue d$ 2 , 0 0 0 , 0 0 0i n6 %b ondst ha tma t ur e do nJ a nua r y1 ,2 0 2 2 .Att het i meo fi s s ua nc e , t he bondswe r es ol da tapr e mi um of$25 0, 00 0.AtJ anuar y1,20 13,Padmapur c has e dhal foft hebondsf or $ 91 0 , 0 0 0,a ndc o ns t r uc t i v el yr e t i r e dt hede bt .Annua li nt e r e s ti spa i donDe c e mbe r3 1 .S t r a i ght l i ne a mo r t i z a t i o ni sus e db ybo t hc ompa ni e s . Requi r ed: Co mpl e t et het a b l eb e l o w wi t hr e s pe c tt ot hea c c o untb al a nc e st ha tP adma ,S ome g aa ndt hec o ns o l i da t e d e nt i t ywoul dr e por tont he i rr e s pe c t i v efina nc i a ls t a t e me nt s . Padma

Somega

I nve s t menti nSomegabonds— 12/31/12 I nve s t menti nSomegabonds— 12/31/13 I nve s t menti nSomegabonds— 12/31/14 BondsPa yabl e— 12 /31/12 BondsPa yabl e— 12 /31/13 BondsPa yabl e— 12 /31/14 Pr emi um onBondsPa ya bl e— 12 /31/12 Pr emi um onBondsPa ya bl e— 12 /31/13 Pr emi um onBondsPa ya bl e— 12 /31/14 Gai n/( l oss )onRet i r ement— 12/31/12 Gai n/( l oss )onRet i r ement— 12/31/13 Gai n/( l oss )onRet i r ement— 12/31/14 I nt er es tI ncome— 12/31/12 I nt er es tI ncome— 12/31/13 I nt er es tI ncome— 12/31/14 I nt er es tExpense— 12/31/12 I nt er es tExpense— 12/31/13 I nt er es tExpense— 12/31/14


Cons ol i dat e d

Answer : Padma I nve s t menti nSomegabonds— 12/31 /12 I nve s t menti nSomegabonds— 12/31 /13 I nve s t menti nSomegabonds— 12/31 /14 BondsPa yabl e— 12 /31/12 BondsPa yabl e— 12 /31/13 BondsPa yabl e— 12 /31/14 Pr e mi um onBondsPa yabl e— 12 /31 /12 Pr e mi um onBondsPa yabl e— 12 /31 /13 Pr e mi um onBondsPa yabl e— 12 /31 /14 Gai n/( l os s )onRe t i r e me nt— 12/31 /12 Gai n/( l os s )onRe t i r e me nt— 12/31 /13 Gai n/( l os s )onRe t i r e me nt— 12/31 /14 I nt e r e s tI nc ome— 12 /31/12 I nt e r e s tI nc ome— 12 /31/13 I nt e r e s tI nc ome— 12 /31/14 I nt e r e s tExpe ns e— 12 /31/12 I nt e r e s tExpe ns e— 12 /31/13 I nt e r e s tExpe ns e— 12 /31/14

Somega

Cons ol i dat e d

0-

0-

0-

920, 000

0-

0-

930, 000 000000000070, 000 70, 000 000-

02, 00 0, 00 0 2, 00 0, 00 0 2, 00 0, 00 0 22 5, 00 0 20 0, 00 0 17 5, 00 0 0000009 5, 00 0 9 5, 00 0 9 5, 00 0

02, 00 0, 00 0 1, 00 0, 00 0 1, 00 0, 00 0 22 5, 00 0 10 0, 00 0 8 7, 50 0 020 2, 50 0 00009 5, 00 0 4 7, 50 0 4 7, 50 0



1 4 )P at a maHo l di ngso wns7 0 %o fS e a gul lCo r po r a t i o n.OnJ a nua r y1 ,2 0 1 3 ,S e a gul la c q ui r e s$ 1 , 0 0 0 , 0 0 0of bondsor i gi nal l yi s s ue dbyPat a maonJ anuar y1 ,2008.Thebondswe r ei s s ue da tas t at e dr at eof5% f or10 y e a r s , f o r$ 9 6 0 , 0 0 0 .S e a gul lpur c h a s e dt he mf o r$ 9 9 0 , 0 0 0 .As s umet ha tb ot hP at a maa ndS e a gul lwi l lus e t hes t r a i ght l i neme t hodf ora nyb ondr e l a t e da mo r t i z a t i o n.Annua li nt e r e s ti sp ai donDe c e mbe r3 1 . Re qui r e d: Co mpl e t et het a b l ebe l o w wi t hr e s pe c tt ot hea c c o untb al a nc e st ha tP at a ma ,S e a gul la ndt hec o ns o l i da t e d e nt i t ywoul dr e por tont he i rr e s pe c t i v efina nc i a ls t a t e me nt s . Pat ama

Se a gul l

I nves t menti nPat amabonds— 12/31/12 I nves t menti nPat amabonds— 12/31/13 I nves t menti nPat emabonds— 12/31/14 BondsPa yabl e— 12 /31/12 BondsPa yabl e— 12 /31/13 BondsPa yabl e— 12 /31/14 Di s c ountonBondsPayabl e— 12/31/12 Di s c ountonBondsPayabl e— 12/31/13 Di s c ountonBondsPayabl e— 12/31/14 Gai n/( l oss )onRet i r ement— 12/31/12 Gai n/( l oss )onRet i r ement— 12/31/13 Gai n/( l oss )onRet i r ement— 12/31/14 I nt er es tI ncome— 12/31/12 I nt er es tI ncome— 12/31/13 I nt er es tI ncome— 12/31/14 I nt er es tExpense— 12/31/12 I nt er es tExpense— 12/31/13 I nt er es tExpense— 12/31/14


Cons ol i dat e d

Answer : Pat ama I nves t menti nPat amabonds— 12/31 /12 I nves t menti nPat amabonds— 12/31 /13 I nves t menti nPat emabonds— 12/31 /14 BondsPa yabl e— 12 /31/12 BondsPa yabl e— 12 /31/13 BondsPa yabl e— 12 /31/14 Di s c ountonBondsPa yabl e— 12 /31 /12 Di s c ountonBondsPa yabl e— 12 /31 /13 Di s c ountonBondsPa yabl e— 12 /31 /14 Gai n/( l os s )onRe t i r e me nt— 12/31 /12 Gai n/( l os s )onRe t i r e ment— 12/31 /13 Gai n/( l os s )onRe t i r e me nt— 12/31 /14 I nt e r e s tI nc ome— 12 /31/12 I nt e r e s tI nc ome— 12 /31/13 I nt e r e s tI nc ome— 12 /31/14 I nt e r e s tExpe ns e— 12 /31/12 I nt e r e s tExpe ns e— 12 /31/13 I nt e r e s tExpe ns e— 12 /31/14

Se a gul l

Cons ol i dat e d

0-

0-

0-

0-

99 2, 00 0

0-

01, 000, 000 1, 000, 000 1, 000, 000 20, 000 16, 000 12, 000 00000054, 000 54, 000 54, 000

99 4, 00 0 00000000005 2, 00 0 5 2, 00 0 000-

01, 00 0, 00 0 002 0, 00 0 000( 1 0, 0 00) 00005 4, 00 0 00-

Ob j e c t i v e :LO2 Di fficul t y:Moder at e


1 5 )P ar k vi e w Ho l di ngso wns7 0 %o fS ky l i neCo r po r a t i o n.OnJ a nua r y1 ,2 0 1 3 ,S ky l i nea c q ui r e sh a l fo ft he $ 2 , 0 0 0 , 0 0 0ofbo ndso r i gi na l l yi s s ue db yPa r k vi e wo nJ a nua r y1 ,2 0 0 8.Theb ondswe r ei s s ue da tas t a t e d r a t eo f5 %f o r1 0ye a r s ,f o r$ 1 , 9 2 0, 0 0 0.S ky l i nepur c h as e dt he mf or$ 9 5 0, 0 0 0 .As s umet ha tbo t hPa r kvi e w a ndS ky l i newi l lus et hes t r a i ght l i neme t hodf o ra nybo ndr e l a t e da mo r t i z a t i on.Annua li nt e r e s ti spa i d onDe c e mbe r31 . Re qui r e d:Pr e pa r et hee nt r i e sr e qui r e df o rt hec o ns o l i da t i ngwor ks h e e tf ort hey e a r se nde dDe c e mbe r3 1 , 2008t hroughDec ember31, 2018. Ans wer :12/31/08-12/31/12:Nocons ol i dat i ngwor ksheetent r yrequi r edbecausebondsar ehel dbya t hi r dpa r t y . 12/31 /13BondsPa yabl e $1, 000, 000 I nt e r e s tI nc ome 60, 000 I nve s t menti nPar kvi e w Bonds Di s c ountonBondsPa yabl e I nt e r e s tExpe ns e Gai nonBondc ons t r uc t i ver e t i r e me nt

$9 60, 0 00 16, 0 00 54, 0 00 30, 0 00

12/31 /14BondsPa yabl e I nt e r e s tI nc ome I nve s t menti nPar kvi e w Bonds Di s c ountonBondsPa yabl e I nt e r e s tExpe ns e I nve s t me nti nSkyl i neSt oc k

$1, 000, 000 60, 000 $9 70, 0 00 12, 0 00 54, 0 00 24, 0 00


$1, 000, 000 60, 000


$1, 000, 000 60, 000

12/31 /17BondsPa yabl e I nt e r e s tI nc ome I nve s t me nti nPar kvi e wBonds I nt e r e s tExpe ns e I nve s t me nti nSkyl i neSt oc k

$1, 000, 000 60, 000

$9 80, 0 00 8, 0 00 54, 0 00 18, 0 00

$9 90, 0 00 4, 0 00 54, 0 00 12, 0 00

$ 1, 0 00, 0 00 54, 0 00 6, 0 00



1 6 )Pa l e oCor p or a t i onho l ds8 0 %o ft hec a pi t a ls t o c kofS oc k r i t eCompa ny . OnJ a nua r y1 ,2 0 13 ,S oc k r i t e pur chase d$50, 000parval ue, 10% bondsont heopenmar kett hathadbeeni s s uedbyPal eoonJ anuar y1, 2 0 1 1.S oc k r i t epa i d$ 5 8, 0 0 0f ort he s eb ondswhi c hha dor i gi na l l ybe e ni s s ue db yPa l e of or$ 5 3 , 0 0 0 ,wi t ha 1 0y ea rma t ur i t yf r om t heda t eofi s s ue .I nt e r e s ti spa i da nnua l l yonDe c e mbe r3 1 .S t r a i ght l i ne a mo r t i z a t i o ni sus e db ybo t hc ompa ni e s . Requi r ed: 1 .Ca l c ul a t et hei nt e r e s ti nc o mer e por t e db yS oc k r i t er e l a t e dt ot h es eb ondsi n2 01 3. 2 .Ca l c ul a t et hei nt e r e s te x pe ns er e por t e db yPa l e or e l a t e dt ot h es eb ondsi n2 0 13 . 3 .Ca l c ul a t et hega i norl os so nr e t i r e me ntofb ondspa y a bl et ob er e por t e do nc o ns o l i da t e dfina nc i a l s t a t e me nt si n2 0 1 3. Ans we r :1 .I nt e r e s ti nc o me=( $ 5 0 , 0 0 0×1 0 %)-( $ 8 , 0 0 0/8 )=$ 4 , 0 0 0 2 .I nt e r e s te x pe ns e=( $ 50 , 0 00×1 0%)-( $ 3 , 0 0 0/1 0)=$ 4 , 7 0 0 3 .Lo s s =Bo okv a l ue-a mo untpa i d=( $ 5 3 , 0 0 0-$ 6 0 0 )-$ 5 8 , 0 0 0=$ 5 , 6 0 0 Ob j e c t i v e :LO2 Di ffic u l t y :Ea s y


17)Phl orapur chase di t s100%owner s hi pi nSpes halmanyyear sagoatat i mewhenbookval uesofas s et s a ndl i a bi l i t i e se qua l e dma r k e tv a l ue s . OnJ a nua r y2 ,2 0 1 4 ,Phl o r apur c h a s e d$ 2 0 0 , 0 0 0ofS pe s ha lCo r po r a t i o n' s6 %b ondsf o r$ 1 8 2 , 0 0 0 .Att ha t t i me , t hi swa sa l lo ft heb ondst ha tha db e e ni s s ue db yS pe s ha l ,a nduna mo r t i z e dpr e mi um o nS pe s h a l ' s bookswas$3, 500.Thebondspa yi nt e r e s tonJ ul y1andJ anua r y1andmat ur eonJ a nuar y1,20 19.Bot h Phl or aa ndS pe s h alus es t r a i ght l i nea mor t i z a t i o n.Phl o r aus e st hee qui t yme t hodofa c c o unt i ngf ori t s i n ve s t me nti nSpe s h al . S pe s h alr e p or t e dt hef o l l o wi ngf o r2 0 1 4: Ne ti nc ome $3 8, 00 0 Di vi de nds $1 0, 00 0 Requi r ed: Pr e pa r ee l i mi na t i o n/a dj us t i nge nt r i e so nt hec o ns o l i da t i ngwo r kpa pe r sf o rt hey e a re nde dDe c e mb e r3 1 , 2014. Ans we r :I nt e r e s tpa yabl e 6, 000 I nt e r e s tr e c e i vabl e 6, 000 ( $200, 000×6% ×1/2) Bondspa yabl e Pr e mi um onbondspa ya bl e Bondi nve s t me nt Gai nonr e t i r e me ntofbonds ( Pr e mi um:$ 3 , 5 0 0-$ 3 , 5 0 0 /5 ) ( Bo ndi n ve s t me nt :$ 1 8 2 , 0 0 0+$ 1 8 , 0 0 0 /5 )

200, 000 2, 800 185, 600 17, 200

I nt e r e s ti nc ome 15, 600 I nt e r e s te xpe ns e Gai nonr e t i r e me ntofbonds [ I nt e r e s ti nc o me :( $ 2 00 , 0 00×6 %)+( $ 18 , 0 0 0/5 ) ] [ I nt e r e s te x pe ns e : ( $ 2 00 , 0 00×6 %)-( $ 3, 5 00 /5 ) ] I nc omef r om s ubs i di ar y Di vi de nds I nve s t me nti ns ubs i di ar y

11, 300 4, 300

55, 200 10, 000 45, 200

I nc o mef r o ms ub s i di a r y : ( $ 3 8, 0 0 0+$ 2 1 , 5 0 0-$ 2 1 , 5 0 0 /5 ) J anuar y2,2014: Pai d Bookval ue Gai no nr e t i r e me nt

$182, 000 $203, 500 $21, 500



1 8 )S a bui sa6 5 %o wne ds ub s i di a r yofP ee r l e s s .OnJ a nua r y1 ,2 0 1 2,S ab ui s s ue d$ 1 , 0 0 0, 0 0 0of$ 1 , 0 0 0f a c e amount8% bondsat$980perbond.Thebondshavei nt er es tpayment sonDec ember31ofeac hyearand ma t ur eo nJ a nua r y1 ,2 0 1 7 .OnJ a nua r y1 ,2 0 1 3 ,P e e r l e s sp ur c h a s e da l l1 , 0 0 0bo ndso nt heo pe nma r k e tf o r $ 1 , 0 1 0pe rb ond.S t r a i ght l i nea mo r t i z a t i o ni sus e db ybo t hc o mpa ni e s . Re qui r e d:Wi t hr e s p ec tt ot heb onds , us eGe ne r a lJ our n a lf o r ma tt o : 1. Rec or dt hej our nalent r i esonSabu' sbooksmadef r om 2012t o2017. 2. Rec or dt hej our nalent r i esonPeer l es s ' booksmadef r om 2012t o2017. 3 . Re c o r dt hee l i mi na t i o ne nt r i e sf o rt hec o ns o l i da t i o nwo r k i ngpa pe r sf o r2 0 1 2t hr o ug h2 0 1 7 . Answer : Requi r ement1 Dat e Acc ountName Sabu' sBooks 1/1 /1 2 Ca s h BondDi s c ount BondsPa yabl e

Debi t

Cr edi t

980, 000 20, 000 1, 000, 000

12/31 /12 I nt e r e s tExpe ns e Cas h I nt e r e s tExpe ns e BondDi s c ount

80, 000 80, 000 4, 000 4, 000

12/31/13 Sameasent r yf orpr i oryea rend 12/31/14 Sameasent r yf orpr i oryea rend 12/31/15 Sameasent r yf orpr i oryea rend 12/31/16 Sameasent r yf orpr i oryea rend 1/1 /1 7

BondsPa yabl e Cas h

1, 000, 000 1, 0 00, 0 00

Requi r ement2 P ee r l e s sBo oks 201 2— Noe nt r y 1/1 /1 3

I nve s t me nti nBonds Cas h 12/31 /13 Cas h I nt e r e s tI nc ome I nt e r e s tI nc ome I nve s t me nti nBonds

1, 010, 000 1, 010, 000 80, 000 80, 000 2, 500 2, 500

12/31/14 Sameasent r yf orpr i oryea rend


12/31/15 Sameasent r yf orpr i oryea rend 12/31/16 Sameasent r yf orpr i oryea rend 1/1 /1 7

Cas h I nve s t me nti nBonds

1, 000, 000 1, 000, 000

Requi r ement3 201 2— Noe nt r yr e qui r e d— bondsowne dbyt hi r dpar t y 12/31 /13 BondsPa yabl e I nt e r e s tI nc ome Los sonBondRe t i r e me nt I nve s t me nti nBonds I nt e r e s tExpe ns e BondDi s c ount

1, 000, 000 77, 500 26, 000

12/31 /14 BondsPa yabl e I nt e r e s tI nc ome I nve s t me nti nSabu Nonc ont r ol l i ngi nt e r e s t I nve s t me nti nBonds I nt e r e s tExpe ns e BondDi s c ount

1, 000, 000 77, 500 12, 675 6, 825

12/31 /15 BondsPa yabl e I nt e r e s tI nc ome I nve s t me nti nSabu Nonc ont r ol l i ngi nt e r e s t I nve s t me nti nBonds I nt e r e s tExpe ns e BondDi s c ount

1, 000, 000 77, 500 8, 450 4, 550

12/31 /16 BondsPa yabl e I nt e r e s tI nc ome I nve s t me nti nSabu Nonc ont r ol l i ngi nt e r e s t I nve s t me nti nBonds I nt e r e s tExpe ns e

1, 000, 000 77, 500 4, 225 2, 275

1, 00 7, 50 0 8 4, 00 0 1 2, 00 0

1, 00 5, 00 0 8 4, 00 0 8, 00 0

1, 00 2, 50 0 8 4, 00 0 4, 00 0

1, 00 0, 00 0 8 4, 00 0

12 /31 /17 Noe nt r yr equi r ed Obj e c t i v e :LO2 ,3 Di fficul t y:Moder at e


19)PareCorpor at i onowns65%oft heout s t andi ngvot i ngs t ockofSummerCorpor at i on.OnJ anuar y1, 2 0 1 3,Pa r epur c h as e d$ 4 , 0 0 0 , 0 0 0ofb ondst ha twe r eo r i gi na l l yi s s ue db yS umme rs e v e r a ly e a r se a r l i e r .The t e ny e a rb ondsh a v ea5 %i nt e r e s tr a t e , a ndpa yi nt e r e s te a c hDe c e mb e r3 1 . Thebo ndswe r eo r i gi na l l yi s s ue da tadi s c o unto f$ 2 0 6, 0 8 0 ,buta tJ a nua r y1 ,2 0 13 ,t he yha v eaboo kv al ue o f$ 3 , 8 9 6, 9 6 0. Pa r ep ai d$ 4 , 0 6 7 , 9 3 5f ort heb ondsa n dwi l la mo r t i z et hepr e mi um o ve rt hene x tfiv eye a r s whent hebondsmat ur e. Bot hcompani esuset hes t r ai ght met hodofamort i zat i on. Requi r ed: 1 . Ca l c u l a t et hei nt e r e s te x pe ns ef o r2 0 1 3t ha twi l lb er e c o r d e db yS umme r . 2 . Ca l c ul a t et hei nt e r e s ti nc o mef o r2 0 1 3t ha twi l lb er e c o r de db yPa r e . 3 . Ca l c u l a t et heGa i n/Lo s so nr e t i r e me nto fb ondspa y a bl et ha twi l lb er e p or t e do nt hec o ns o l i da t e d fina nc i a ls t a t e me nt sf o rt hey e a re n di ngDe c e mb e r3 1 , 2 0 1 3 . Answer :Requi r ement1 I nt e r e s te x pe ns e=( $ 4 , 0 0 0 , 0 0 0×5 %)+( $ 1 03 , 0 4 0/5 )=$ 2 2 0, 6 0 8 Requi r ement2 I nt e r e s ti nc o me=( $ 4 , 0 0 0, 0 0 0×5 %)-( $ 6 7, 9 3 5/5 )=$ 1 86 , 4 1 3 Requi r ement3 Lo s s=Bo okv a l ue-a mo untpa i d=$ 3 , 8 9 6 , 9 6 0-$ 4 , 0 6 7 , 9 3 5=( $ 1 7 0 , 9 7 5 ) Obj e c t i v e :LO2 ,3 Di ffic u l t y :Ea s y


Chapter 7 12ge

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