Pants Corporation acquired 75 percent of Shirt Company's voting shares on January 1,20X7,at underlying book value.On December 31,20X7,it also purchased $300,000 par value 9 percent Shirt bonds,which had been issued on January 1,20X3 to Parry Corporation (unaffiliated with either Pants or Shirt)at a $20,000 premium.The bonds were originally issued with a 10-year maturity and pay interest annually on December 31.During preparation of the consolidated financial statements for December 31,20X7,the following consolidation entry was included in the consolidation worksheet:

-Based on the information given above,what was the carrying amount of the bonds on Shirt's books on the date of purchase by Pants?

Question

Pants Corporation acquired 75 percent of Shirt Company's voting shares on January 1,20X7,at underlying book value.On December 31,20X7,it also purchased $300,000 par value 9 percent Shirt bonds,which had been issued on January 1,20X3 to Parry Corporation (unaffiliated with either Pants or Shirt)at a $20,000 premium.The bonds were originally issued with a 10-year maturity and pay interest annually on December 31.During preparation of the consolidated financial statements for December 31,20X7,the following consolidation entry was included in the consolidation worksheet:
 
-Based on the information given above,what was the carrying amount of the bonds on Shirt's books on the date of purchase by Pants?

Quizplus · Accepted Answer

The carrying amount of the bonds on Shirt's books on the date of purchase by Pants would be the face value of the bonds plus any unamortized premium. The premium was $20,000 and had been amortized over the previous five years, resulting in an unamortized premium of $11,902 ($20,000 - [$20,000 × (5/10)]). Therefore, the carrying amount of the bonds on Shirt's books on the date of purchase by Pants would be $311,902 ($300,000 + $11,902).

Pants Corporation Acquired 75 Percent of Shirt Company's Voting Shares