Crystal Co.purchased all of the common stock of Sill Corp.on January 1 of the current year.Five years prior to the acquisition, Sill Corp.had issued 30-year bonds bearing an interest rate of 8%.At the time of the acquisition, the prevailing interest rate for similar bonds was 5%.These bonds should be included in the consolidated balance sheet at
A)face value.
B)at a value higher than Sill's recorded value due to the change in interest rates.
C)at a value lower than Sill's recorded value due to the change in interest rates.
D)at Sill's recorded value.

Question

Crystal Co.purchased all of the common stock of Sill Corp.on January 1 of the current year.Five years prior to the acquisition, Sill Corp.had issued 30-year bonds bearing an interest rate of 8%.At the time of the acquisition, the prevailing interest rate for similar bonds was 5%.These bonds should be included in the consolidated balance sheet at​
A)​face value.
B)​at a value higher than Sill's recorded value due to the change in interest rates.
C)​at a value lower than Sill's recorded value due to the change in interest rates.
D)​at Sill's recorded value.

Quizplus · Accepted Answer

The bonds should be included at a value higher than Sill's recorded value because the prevailing interest rate at the time of acquisition (5%) is lower than the interest rate on the bonds (8%), which increases the present value of the bonds.