Exercise 5-9 On January 1, 2013, Point Corporation acquired an 80% interest in S
ID: 2580119 • Letter: E
Question
Exercise 5-9 On January 1, 2013, Point Corporation acquired an 80% interest in Sharp Company for $1,992,000. At that time Sharp Company had common stock of $1,504,000 and retained earnings of $704,000. The book values of Sharp Company's assets and liabilities were equal to their fair values except for land and bonds payable. The land had a fair value of $100,000 and a book value of $81,000. The outstanding bonds were issued at par value on January 1, 2008, pay 9% annually, and mature on January 1, 2018, The bond principal is $505,000 and the current yield rate on similar bonds is 7%.Explanation / Answer
Prepare the following journal entry:
Note:
Present value of bond:
Principal $505,000 × 0.71299 = $360,060
Interest $45,450 × 4.10020 = $186,354
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Total $546,414
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Date Account Title and Explanation Debit Credit Dec 31 Land $19,000 2013 Goodwill $304,414 Interest expense ($505,000 × 9%) ($546,414 × 7%) $7,201 Premium on bonds payable - Unamortized ($41,414 $7,201) $34,213 Difference between implied and book value $282,000 To record workpaper entries to allocate and depreciate differences