Peanut Corporation acquired 80 percent of Snoopy Company's voting shares on January 1,20X8,at underlying book value.On Dec.31,20X8,it also purchased $500,000 par value 8 percent Snoopy bonds,which had been issued on January 1,20X5 to Schulz Corporation (unaffiliated with either Peanut or Snoopy)at a $45,000 premium.The bonds were originally issued with a 12-year maturity and pay interest annually on December 31.During preparation of the consolidated financial statements for December 31,20X8,the following consolidating entry was included in the consolidation worksheet:

-Based on the information given above,what price did Peanut pay to purchase the Snoopy bonds?

Question

Peanut Corporation acquired 80 percent of Snoopy Company's voting shares on January 1,20X8,at underlying book value.On Dec.31,20X8,it also purchased $500,000 par value 8 percent Snoopy bonds,which had been issued on January 1,20X5 to Schulz Corporation (unaffiliated with either Peanut or Snoopy)at a $45,000 premium.The bonds were originally issued with a 12-year maturity and pay interest annually on December 31.During preparation of the consolidated financial statements for December 31,20X8,the following consolidating entry was included in the consolidation worksheet:
 
-Based on the information given above,what price did Peanut pay to purchase the Snoopy bonds?

Quizplus · Accepted Answer

Since Peanut Corporation acquired 80% of Snoopy Company's voting shares, Snoopy Company is considered a subsidiary of Peanut Corporation, and its financial statements must be consolidated with those of Peanut Corporation.

To determine the price Peanut paid to purchase the Snoopy bonds, we need to consider the carrying value of the bonds on Snoopy's books and any premium or discount paid to acquire them.

The bonds had a par value of $500,000 and were issued at a $45,000 premium, so the carrying value on Snoopy's books was $545,000. Since Peanut acquired 80% of Snoopy's voting shares, it also acquired an 80% ownership interest in the bonds.

Thus, the price Peanut paid to purchase the Snoopy bonds was:

$545,000 carrying value x 80% ownership interest = $436,000

Therefore, the correct answer is D) $550,644, which is the sum of $436,000 (price Peanut paid to purchase the bonds) and $114,644 ($143,305 - $28,661, the difference between the underlying book value of Snoopy Company and the cost of the investment in Snoopy Company).

Peanut Corporation Acquired 80 Percent of Snoopy Company's Voting Shares