Question

NEED ANSWERS ASAP

Pan Corporation owns 65 percent of Sauce Corporation's voting shares. On January 1, 20X3, Pan Corporation sold $300,000 par value 7 percent bonds to Sauce when the market interest rate was 4 percent. The bonds mature in 15 years and pay interest semiannually on June 30 and December 31. Based on the information given above, in the preparation of the 20X3 consolidated financial statements, interest income will be:

credited for $21,000 in the consolidation entries.

credited for $15,982 in the consolidation entries.

debited for $15,982 in the consolidation entries.

debited for $21,000 in the consolidation entries.

Pat Corporation acquired 80 percent of Smack Corporation's voting common stock on January 1, 20X7. On December 31, 20X8, Pat received $390,000 from Smack for equipment Pat had purchased on January 1, 20X5, for $400,000. The equipment is expected to have a 10-year useful life and no salvage value. Both companies depreciate equipment on a straight-line basis.

Based on the preceding information, in the preparation of consolidation entries related to the equipment transfer for the 20X9 consolidated financial statements, the net effect on accumulated depreciation will be:

an increase of $135,000.

a decrease of $135,000.

a decrease of $160,000.

an increase of $160,000.

Potter Corporation owns 60 percent of Snape Company's voting shares. On January 1, 20X4, Snape sold bonds with a par value of $400,000 when the market rate was 6 percent. Potter purchased one-third of the bonds; the remainder was sold to nonaffiliates. The bonds mature in 15 years and pay an annual interest rate of 5 percent. Interest is paid semiannually on June 30 and December 31.


Based on the information given above, what amount of interest expense should be reported in the 20X5 consolidated income statement?

$14,516
		$21,775
		$14,448
		$0

Pluto Corporation owns 70 percent of Saturn Company's stock. On July 1, 20X4, Pluto sold a piece of equipment to Saturn for $56,350. Pluto had purchased this equipment on January 1, 20X1, for $63,000. The equipment's original 15-year estimated total economic life remains unchanged. Both companies use straight-line depreciation. The equipment's residual value is considered negligible.


Based on the information provided, in the preparation of the 20X5 consolidated income statement, depreciation expense will be

		credited for $700 in the consolidation entries.
		credited for $350 in the consolidation entries.
		debited for $350 in the consolidation entries.
		debited for $700 in the consolidation entries.

Pancake Corporation owns 85 percent of Syrup Corporation's voting shares. On January 1, 20X8, Pancake Corporation sold $200,000 par value 8 percent bonds to Syrup when the market interest rate was 5 percent. The bonds mature in 10 years and pay interest semiannually on June 30 and Dec 31.


Based on the information given above, what amount of investment in bonds will be eliminated in the preparation of the 20X8 consolidated financial statements?

		$243,060
		$156,940
		$200,000
		$246,767

Answer 1

The correct answer is "Credit for $21,000 in the consolidation entries".

Supporting explanation:

As per one of the rules of Accounting is that "Debit all expenses and losses. Credit all income and gains".

Therefore, income always has credit balance.

In the given problem, the interest is an income therefore, it should be credited.

Regarding the calculations -

Interest Income on June 30th, 20X3 = $300,000*7/100*6/12 months

= $10,500

Interest Income on December 31st, 20X3 = $300,000*7/100*6/12 months

= $10,500

Interest income in 20X3 = Interest Income on June 30th, 20X3 + December 31st, 20X3

= $10,500 + $10,500

= $21,000

Therefore, interest income for 20X3 is $21,000 will be credited.

Note: As per HOMEWORKLIB RULES, the first question is answered, hence, please post the remaining questions separately.