On January 1, 20X3, Pope Company Acquired 100% of the Common

question 36

Essay

On January 1, 20X3, Pope Company acquired 100% of the common stock of Siegel Company for $300,000. On this date Siegel had total owners' equity of $250,000. Any excess of cost over book value is attributable to goodwill. Pope accounts for its investment in Siegel using the simple equity method.
Also on July 1, 20X3, Siegel Company sold to outside investors $200,000 par value of 10-year, 10% bonds. The price received was equal to par. The bonds pay interest semi-annually on July 1 and January 1.
During early 20X4, market interest rates on bonds similar to those issued by Siegel decreased to 8%. As a result, the market value of the bonds increased. On July 1, 20X4, Pope purchased $100,000 par value of Siegel's bonds, paying $112,695. Pope still holds the bonds on December 31, 20X4 and has amortized the premium, using the effective-interest method which has resulted in interest income of $4,508 and a balance in the Investment in Subsidiary Bonds account of $112,203.
Required:
Prepare the eliminating entries pertaining to the intercompany purchase of the bonds for the year ended December 31, 20X4.

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Definitions:

Assignment

The transfer of rights or property from one party to another.

Agreement

A mutual understanding or arrangement, typically formalized by a contract, between two or more parties.

Substantial Performance

In contract law, the situation that results when a party to a contract, in good faith, executes all the promised terms and conditions of the contract with the exception of minor details that do not affect the real intent of their agreement.

Promising

pertains to showing signs of future success or positive outcomes.