Effective interest rate method

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Reference no: EM133264897

Question: Planet Inc. (Planet) purchased 100% of the outstanding voting shares of Sol Company (Sol) for $420,000 on January 1, 2022. On that date, Sol had common shares and retained earnings worth $100,000 and $233,000, respectively.

On acquisition date, the plant assets and patent had a remaining useful life of 8 years and 10 years, respectively. Both the plant assets and patent are amortized on a straight-line basis.

The bonds payable mature on December 31, 2030, pay interest annually, and are amortized using the effective interest rate method. The market rate of interest for similar bonds is 8%.

Reference no: EM133264897

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