Assuming that both parties use the effective rate method, what gain or loss from the retirement of this debt should be reported on the consolidated income statement for 2023? Note: Round your intermediate calculations and final answer to the nearest dollar amount. Loss on retirement
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- On January 1, 2019, Brewster Company issued 2,000 of its 5-year, 1,000 face value, 11% bonds dated January 1 at an effective annual interest rate (yield) of 9%. Brewster uses the effective interest method of amortization. On December 31, 2023, Brewster extinguished the 2,000 bonds early through acquisition in the open market for 1,980,000. On July 1, 2022, Brewster issued 5,000 of its 6-year, 1,000 face value, 10% convertible bonds dated July 1 at an effective annual interest rate (yield) of 12%. The bonds are convertible at the option of the investor into Brewsters common stock at a ratio of 10 shares of common stock for each bond. Brewster uses the effective interest method of amortization. On July 1, 2023, an investor in Brewsters convertible bonds tendered 1,500 bonds for conversion into 15,000 shares of Brewsters common stock, which had a market value of 105 per share at the date of the conversion. Required: 1. Using the information about Brewster, answer the following questions: a. Were the 11% bonds issued at par, at a discount, or at a premium? Why? b. Is the amount of interest expense for the 11% bonds using the effective interest method of amortization higher in the first or second year of the life of the bond issue? Why? 2. Using the information about Brewster, explain the following: a. How is a gain or loss on early extinguishment of debt determined? Does the early extinguishment of the 11% bonds result in a gain or loss? Why? b. How does Brewster report the early extinguishment of the 11% bonds on the 2023 income statement? 3. Based on the information provided about Brewster, answer the following questions: a. Does recording the conversion of the 10% convertible bonds into common stock under the book value method affect net income? What is the rationale for the book value method? b. Does recording the conversion of the 10% convertible bonds into common stock under the market value method affect net income? What is the rationale for the market value method?Paulina, Incorporated, owns 80 percent of Southport Company. On January 1, 2021, Paulina acquires half of Southport’s $780,000 outstanding 13-year bonds. These bonds had been sold on the open market on January 1, 2018, at a 12 percent effective rate. The bonds pay a cash interest rate of 10 percent every December 31 and are scheduled to come due on December 31, 2030. Southport issued this debt originally for $679,793. Paulina paid $442,339 for this investment, indicating an 8 percent effective yield. 1) Assuming that both parties use the effective rate method, what gain or loss from the retirement of this debt should be reported on the consolidated income statement for 2020? What is loss on retirment? 2) Assuming that both parties use the effective rate method, what balances should appear in the Investment in Southport Bonds account on Paulina’s records and the Bonds Payable account of Southport as of December 31, 2021? investment insouthport bonds: bonds payable: 3)…Paulina, Incorporated, owns 90 percent of Southport Company. On January 1, 2021, Paulina acquires half of Southport’s $560,000 outstanding 13-year bonds. These bonds had been sold on the open market on January 1, 2018, at a 12 percent effective rate. The bonds pay a cash interest rate of 10 percent every December 31 and are scheduled to come due on December 31, 2030. Southport issued this debt originally for $488,056. Paulina paid $317,576 for this investment, indicating an 8 percent effective yield. Assuming that both parties use the effective rate method, what gain or loss from the retirement of this debt should be reported on the consolidated income statement for 2020? Assuming that both parties use the effective rate method, what balances should appear in the Investment in Southport Bonds account on Paulina’s records and the Bonds Payable account of Southport as of December 31, 2021? Assuming that both parties use the straight-line method, what consolidation entry would be…
- Paulina, Incorporated, owns 80 percent of Southport Company. On January 1, 2021, Paulina acquires half of Southport’s $730,000 outstanding 13-year bonds. These bonds had been sold on the open market on January 1, 2018, at a 12 percent effective rate. The bonds pay a cash interest rate of 10 percent every December 31 and are scheduled to come due on December 31, 2030. Southport issued this debt originally for $636,216. Paulina paid $413,984 for this investment, indicating an 8 percent effective yield. A. Assuming that both parties use the effective rate method, what gain or loss from the retirement of this debt should be reported on the consolidated income statement for 2020? B. Assuming that both parties use the effective rate method, what balances should appear in the Investment in Southport Bonds account on Paulina’s records and the Bonds Payable account of Southport as of December 31, 2021? C. Assuming that both parties use the straight-line method, what consolidation entry would be…On January 1, 2025, Culver Company purchased $280,000, 6% bonds of Aguirre Co. for $ 257, 289. The bonds were purchased to yield 8% interest. Interest is payable semiannually on July 1 and January 1. The bonds mature on January 1, 2030. Culver Company uses the effective - interest method to amortize discount or premium. On January 1, 2027, Culver Company sold the bonds for $258,816 after receiving interest to meet its liquidity needs. /25/25 $/26/26 - /27/27/28/28 1/1/297/1/291/1/30 Tatal 1On January 1, 2025, Oriole Company purchased $230,000, 6% bonds of Winds Co. for $240,065. The bonds were purchased to yield 5% interest. Interest is payable semiannually on July 1 and January 1. The bonds mature on January 1, 2030. Oriole Company uses the effective-interest method to amortize discount or premium. On January 1, 2027, Oriole Company sold the bonds for $234,565 after receiving interest to meet its liquidity needs. (a) Your answer has been saved. See score details after the due date. Prepare the journal entry to record the purchase of bonds on January 1. Assume that the bonds are classified as available-for-sale. (Credit account titles are automatically Indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry for the account titles and enter O for the amounts. List debit entry before credit entry)
- On January 1, 2020, Flounder Company purchased $330,000, 8% bonds of Aguirre Co. for $304,517. The bonds were purchased to yield 10% interest. Interest is payable semiannually on July 1 and January 1. The bonds mature on January 1, 2025. Flounder Company uses the effective-interest method to amortize discount or premium. On January 1, 2022, Flounder Company sold the bonds for $306,162 after receiving interest to meet its liquidity needs. (a) Your answer is correct. Prepare the journal entry to record the purchase of bonds on January 1. Assume that the bonds are classified as available-for-sale. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Date Account Titles and Explanation Debit Credit Jan. 1, Debt Investments 304,517 2020 Cash 304,517On January 1, 2025, Copa Company purchased $300,000, 6% bonds of Cabana Co. for $313,128. The bonds were purchased to yield 5% interest. Interest is payable semiannually on July 1 and January 1. The bonds mature on January 1, 2030. Copa Company uses the effective-interest method to amortize discount or premium. On January 1, 2027, Copa Company sold the bonds for $305,600 after receiving interest to meet its liquidity needs. (a) Prepare the journal entry to record the purchase of bonds on January 1. Assume that the bonds are classified as available-for-sale. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List debit entry before credit entry.) Date Jan. 1, 2025 Account Titles and Explanation Debit CreditWBE Ltd. sold $7,660,000 of 12% bonds, which were dated March 1, 2023, on June 1, 2023. The bonds paid interest on September 1 and March 1 of each year. The bonds' maturity date was March 1, 2033, and the bonds were issued to yield 14%. WBE's fiscal year-end was February 28, and the company followed IFRS. On June 1, 2024, WBE bought back $3,660,000 worth of bonds for $3,560,000 plus accrued interest. Using 1. a financial calculator, or 2. Excel function PV, calculate the issue price of the bonds and prepare the entry for the issuance of the bonds. Hint: Use the account Interest Expense in your entry). (Round answer to O decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List all debit entries before credit entries.) Account Titles and Explanation eTextbook and Media Debit Carrying amount of the bond $ Credit Using…
- On January 1, 2020, Nash Company purchased $330,000, 8% bonds of Aguirre Co. for $304,517. The bonds were purchased to yield 10% interest. Interest is payable semiannually on July 1 and January 1. The bonds mature on January 1, 2025. Nash Company uses the effective-interest method to amortize discount or premium. On January 1, 2022, Nash Company sold the bonds for $306,162 after receiving interest to meet its liquidity needs. Collapse question part (a) Prepare the journal entry to record the purchase of bonds on January 1. Assume that the bonds are classified as available-for-sale. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Date Account Titles and Explanation Debit Credit Jan. 1, 2020 Click if you would like to Show Work for this question: Open Show WorkOn January 1, 2020, Blossom Company purchased $310,000, 6% bonds of Aguirre Co. for $284,855. The bonds were purchased to yield 8% interest. Interest is payable semiannually on July 1 and January 1. The bonds mature on January 1, 2025. Blossom Company uses the effective-interest method to amortize discount or premium. On January 1, 2022, Blossom Company sold the bonds for $286,344 after receiving interest to meet its liquidity needs. Prepare the amortization schedule for the bonds. (Round answers to 0 decimal places, e.g. 1,250.)On January 1, 2020, Sage Company purchased $270,000, 6% bonds of Aguirre Co. for $248,099. The bonds were purchased to yield 8% interest. Interest is payable semiannually on July 1 and January 1. The bonds mature on January 1, 2025. Sage Company uses the effective-interest method to amortize discount or premium. On January 1, 2022, Sage Company sold the bonds for $249,638 after receiving interest to meet its liquidity needs. (a) Prepare the journal entry to record the purchase of bonds on January 1. Assume that the bonds are classified as available-for-sale. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Date Account Titles and Explanation Debit Credit Jan. 1, 2020