Moon Corporation issued $300,000 par value 10-year bonds at 107 on January 1,2003,which Star Corporation purchased.On July 1,2007,Sun Corporation purchased $120,000 of Moon bonds from Star.The bonds pay 12 percent interest annually on December 31.The preparation of consolidated financial statements for Moon and Sun at December 31,2009,required the following eliminating entry:

-Based on the information given above,what amount did Sun pay when it purchased the bonds on July 1,2007?

Question

Moon Corporation issued $300,000 par value 10-year bonds at 107 on January 1,2003,which Star Corporation purchased.On July 1,2007,Sun Corporation purchased $120,000 of Moon bonds from Star.The bonds pay 12 percent interest annually on December 31.The preparation of consolidated financial statements for Moon and Sun at December 31,2009,required the following eliminating entry:
 
-Based on the information given above,what amount did Sun pay when it purchased the bonds on July 1,2007?

Quizplus · Accepted Answer

The correct answer is A because the purchase price of the bonds is equal to the present value of the future cash flows, which is $118,020.

Moon Corporation Issued $300,000 Par Value 10-Year Bonds at 107