Pancake Corporation owns 85 percent of Syrup Corporation's voting shares.On January 1,20X8,Pancake Corporation sold $200,000 par value 8 percent bonds to Syrup when the market interest rate was 5 percent.The bonds mature in 10 years and pay interest semiannually on June 30 and Dec 31.
-Based on the information given above,in the preparation of the 20X8 consolidated financial statements,premium on bonds payable will be:

Question

Quizplus · Accepted Answer

To determine the premium on bonds payable, first calculate the present value of the bond:
PV = $200,000 * [1 - (1 / (1 + (0.05 / 2))^20)] / (0.05 / 2) + $200,000 = $238,939.44

Since Syrup owns 85 percent of the voting shares, 85 percent of the premium on bonds payable is attributable to Pancake. Therefore, the premium on bonds payable to be eliminated in the consolidation entries is:

Premium on bonds payable = 85% * ($238,939.44 - $200,000) = $38,939.44

Since the premium is an adjustment to the carrying value of the bond, it is credited in the consolidating entries. Therefore, the correct answer is (C) debited for $43,060 in the consolidating entries.

Pancake Corporation Owns 85 Percent of Syrup Corporation's Voting Shares