On January 1, 2008. Phantom Company acquires $200,000 of Spiderman Products Inc,, 9% bonds at a price of $185,589

E17-5 (Effective-Interest versus Straight line bond amortization) On January 1, 2008. Phantom Company acquires $200,000 of Spiderman Products Inc,, 9% bonds at a price of $185,589. The interest is payable each December 31, and the bonds mature December 31, 2010. The investment will provide Phantom Company a 12% yield. The bonds are classified as held to maturity.

Instructions
a.) Prepare a 3 yr schedule of interest revenue and bond discount amortization, applying the straight line method.
b.) Prepare a 3 year schedule of interest revenue and bond discount amortization, applying effective interest method.
c.) Prepare the journal entry for the interest receipt of Dec 31, 2009, and the discount amortization under the straight line method.
d.) Prepare the journal entry for the interest receipt of Dec 31 2008, and the discount amortization under the effective interest method.

Click here for the solution: On January 1, 2008. Phantom Company acquires $200,000 of Spiderman Products Inc,, 9% bonds at a price of $185,589

Axel Corporation acquires 100% of the stock of Wheal Company on December 31, Year 4

Axel Corporation acquires 100% of the stock of Wheal Company on December 31, Year 4. The following information pertains to Wheal Company on the date of acquisition:

Book Value Fair Value
Cash......................................................... $ 40,000 $ 40,000
Accounts receivable.................................. 60,000 55,000
Inventory................................................... 50,000 75,000
Property, plant, and equipment (net)........ 100,000 200,000
Secret formula (patent) ............................ - 30,000
Total assets .............................................. $250,000 $400,000

Accounts payable ..................................... $ 30,000 $ 30,000
Accrued employee pensions...................... 20,000 22,000
Long-term debt......................................... 40,000 38,000
Capital stock ............................................ 100,000 -
Other contributed capital ......................... 25,000 -
Retained earnings .................................... 35,000 -
Total liabilities and equity ........................ $250,000 $ 90,000

Axel Corporation issues $110,000 par value ($350,000 market value on December 31, Year 4) of its own stock to the shareholders of Wheal Company to consummate the transaction, and Wheal Company becomes a wholly owned, consolidated subsidiary of Axel Corporation.

Required:
a. Prepare journal entries for Axel Corp. to record the acquisition of Wheal Company stock assuming (1) pooling accounting and (2) purchase accounting.
b. Prepare the worksheet entries for Axel Corp. to eliminate the investment in Wheal Company stock in preparation for a consolidated balance sheet at December 31, Year 4 assuming (1) pooling accounting and (2) purchase accounting.
c. Calculate consolidated retained earnings at December 31, Year 4 (Axel's retained earnings at this date are $150,000), assuming:
(1) Axel Corp. uses the pooling method for this business combination.
(2) Axel Corp. uses the purchase method for acquisition of Wheal Company.


Click here for the solution: Axel Corporation acquires 100% of the stock of Wheal Company on December 31, Year 4

Through a "Type A" reorganization, VizslaCo acquires 100% of Puli Corporation by exchanging 30% of its stock for all of Puli's assets and liabilities

Through a "Type A" reorganization, VizslaCo acquires 100% of Puli Corporation by exchanging 30% of its stock for all of Puli's assets and liabilities. The VizslaCo. stock was exchanged for all of the Puli shareholders. Then Puli liquidated. The net value of Puli's assets at the time of the restructuring was $500,000, and the Federal long-term tax-exempt rate was 5%. Puli held business tax credit carryovers of $61,250. If VizslaCo is always in the 35% tax bracket, what is the value of these credits to VizslaCo., assuming that it uses a discount rate of 8%?

Click here for the solution: Through a "Type A" reorganization, VizslaCo acquires 100% of Puli Corporation by exchanging 30% of its stock for all of Puli's assets and liabilities