Bond and Bonds Payable
1)pk acquired a 25% interest in Trent Co. on January 1, 2010, for $500,000. At that time, Trent had 1,000,000 shares of its $1 par common stock issued and outstanding. During 2010, Trent paid cash dividends of $160,000 and thereafter declared and issued a 5% common stock dividend when the market value was $2 per share. Trent's net income for 2010 was $360,000. What is the balance in Agee’s investment account at the end of 2010
Cost $500,000
Share of net income (.25 × $360,000) 90,000
Share of dividends (.25 × $160,000) (40,000)
Balance in investment account $550,000
2)During 2008, PK Co. purchased 2,000, $1,000, 9% bonds. The carrying value of the bonds at December 31, 2010 was $1,960,000. The bonds mature on March 1, 2015, and pay interest on March 1 and September 1. PK sells 1,000 bonds on September 1, 2012, for $988,000, after the interest has been received. PK uses straight-line amortization. The gain on the sale is
Discount amortization: $40,000 × 8/50 = $6,400 ($1,960,000 + $6,400) ÷ 2 = $983,200; $988,000 – $983,200 = $4,800 gain.
1. On August 1, 2011, Lane Corporation called its 10% convertible bonds for conversion. The $8,000,000 par bonds were converted into 320,000 shares of $20 par common stock. On August 1, there was $700,000 of unamortized premium applicable to the bonds. The fair market value of the common stock was $20 per share. Ignore all interest payments.
1. Bonds Payable 8,000,000 Premium on Bonds Payable 700,000 Common Stock 6,400,000 Paid-in Capital in Excess of Par 2,300,000
2. Packard, Inc. decides to issue convertible bonds instead of common stock. The company issues 10% convertible bonds, par $3,000,000, at 97. The investment banker indicates that if the bonds had not been convertible they would have sold at 94.
Cash 2,910,000 Discount on Bonds Payable 90,000 Bonds Payable 3,000,000
3. Gomez Company issues $5,000,000 of bonds with a coupon rate of 8%. To help the
Cost $500,000
Share of net income (.25 × $360,000) 90,000
Share of dividends (.25 × $160,000) (40,000)
Balance in investment account $550,000
2)During 2008, PK Co. purchased 2,000, $1,000, 9% bonds. The carrying value of the bonds at December 31, 2010 was $1,960,000. The bonds mature on March 1, 2015, and pay interest on March 1 and September 1. PK sells 1,000 bonds on September 1, 2012, for $988,000, after the interest has been received. PK uses straight-line amortization. The gain on the sale is
Discount amortization: $40,000 × 8/50 = $6,400 ($1,960,000 + $6,400) ÷ 2 = $983,200; $988,000 – $983,200 = $4,800 gain.
1. On August 1, 2011, Lane Corporation called its 10% convertible bonds for conversion. The $8,000,000 par bonds were converted into 320,000 shares of $20 par common stock. On August 1, there was $700,000 of unamortized premium applicable to the bonds. The fair market value of the common stock was $20 per share. Ignore all interest payments.
1. Bonds Payable 8,000,000 Premium on Bonds Payable 700,000 Common Stock 6,400,000 Paid-in Capital in Excess of Par 2,300,000
2. Packard, Inc. decides to issue convertible bonds instead of common stock. The company issues 10% convertible bonds, par $3,000,000, at 97. The investment banker indicates that if the bonds had not been convertible they would have sold at 94.
Cash 2,910,000 Discount on Bonds Payable 90,000 Bonds Payable 3,000,000
3. Gomez Company issues $5,000,000 of bonds with a coupon rate of 8%. To help the