Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. paulina, incorporated, owns 80 percent of southpor

Paulina, Incorporated, owns 80 percent of Southport Company. On January 1, 2021, Paulina acquires half...

70.2K

Verified Solution

Question

Accounting

Paulina, Incorporated, owns 80 percent of Southport Company. On January 1, 2021, Paulina acquires half of Southports $780,000 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 $679,793. Paulina paid $442,339 for this investment, indicating an 8 percent effective yield.

1) Assuming that both parties use the effective rate method, what gain or loss from the retirement of this debt should be reported on the consolidated income statement for 2020?

What is loss on retirment?

2) 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?

investment insouthport bonds:

bonds payable:

3) 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.

bonds payable:

interest income:

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students