Exercise 91 Pacelli Company issued 10year 0 bonds with a par

Exercise 9-1 Pacelli Company issued 10-year ?0% bonds with a par value of $1,000,000 on January 2, 2013 for $940,000. Interest is paid semiannually on June 30 and December 31 on Decembe owned subsidiary of Pace Company. Both companies use the straight-line method to amortize bond discounts and premiums. Salez Company declared cash dividends of $60,000 each year during the period 2014-2015 Your answer is correct. Compute the total gain or loss on the constructive retirement of debt. Total constructive Loss Your answer is correct. Allocate the total gain or loss between Pace Company and Salez Company. Total constructive osts ?your answer is correct. Prepare the book entries related to the bonds made by the individual companies during 2 manually. 015,Cat no eotry is required select \"No Entry for the account titles and enter o for the a Debit Credit Account TRies and Fxplanation 8503

Solution

2014 Cost Method Partial Equity Method Complete Equity Method Reported net income - Pacelli $260,000 $260,000 $260,000 Less: Dividend income ($60,000)(.80)              48,000 Less: Equity Income ($140,000)(.80)                  112,000 Less: Adjusted Equity Income ($112,000-38,400-(80% of 20,000))                       57,600 Net income from independent operations - Pacelli           212,000                  148,000                     202,400 Less: Constructive loss on bond retirement              38,400                    38,400                       38,400 Pacelli\'s contribution to consolidated income           173,600                  109,600                     164,000 Reported net income of Salez $140,000 Less: Constructive loss on bond retirement             20,000 Salez\'s contribution to consolidated income           120,000 x .80              96,000                    96,000                       96,000 Controlling interest in consolidated net income           269,600                  205,600                     260,000 Noncontrolling interest in consolidated income ($120,000 x .20) $24,000 $24,000 $24,000 2015 Cost Method Partial Equity Method Complete Equity Method Reported net income - Pacelli $280,000 $280,000 $280,000 Less: Dividend income ($60,000)(.80)              48,000 Less: Equity income ($190,000)(.80)                  152,000 Less: Adjusted Equity income ($152,000 + $4,800 + (.80 x $2,500))                     158,800 Net income from independent operations - Pacelli           232,000                  128,000                     121,200 Add: Constructive loss recorded*                4,800                       4,800                         4,800 Pacelli\'s contribution to consolidated income           236,800                  132,800                     126,000 Reported net income of Salez $190,000 Add: Constructive loss recorded**               2,500 Salez\'s contribution to consolidated income           192,500 x 0.80           154,000                  154,000                     154,000 Controlling interest in consolidated net income           390,800                  286,800                     280,000 Noncontrolling interest in consolidated income ($192,500 x .20) $38,500 $38,500 $38,500 *($3,000 x 2 x .80) = $4,800 or constructive loss divided by 8 years = $38,400/8 years = $4,800 ** Constructive loss divided by 8 years = $20,000/8 = $2,500