Reference no: EM132947215
Problem 1 - On January 1, 2020, Puso Company acquired 90% ownership of Solo Company at underlying book value. The fair value of the noncontrolling interest at the date of acquisition was equal to 10% of the book value of Solo Company. On March 17, 2020, Solo purchased inventory from Puso for 90,000. Solo sold the 80% inventory to an unaffiliated company for 100,000 on November 21, 2020. Puso had produced the inventory sold to Solo for 62,000. The companies had no other transactions during 2020.
1. What amount of sales will be reported in the 2020 consolidated income statement?
a. 162,000 c. 62,000
b. 100,000 d. 38,000
2. What amount of cost of goods sold will be reported in the 2020 consolidated income statement?
a. 49,600 c. 62,000
b. 58,000 d. 90,000
3. What amount of consolidated net income will be assigned to the controlling shareholders for 2020?
a. 58,000 c. 47,600
b. 52,200 d. 45,200
Problem 2 - San Pedro Co. issued a 4-year 2,500,000 face value of 12% convertible bonds at 105 on January 1, 2020, maturing on January 1, 2024 and paying interest annually on December 31. It is reliably ascertained that the bonds would sell at 2,350,000 without the conversion feature with an effective yield of 14%. Each 1,000 bond is convertible into 10 shares of 100 par value share capital. On December 31, 2020, the entire bond issue was converted into share capital and on this date, the share has a market value of 150 and the bonds are quoted at 101.
1. What is the equity component of the issuance of the convertible bonds on January 1, 2020?
a. 275,000 c. 125,000
b. 150,000 d. P0
2. What amount of share premium should be recognized on conversion of bonds payable into share capital?
a. P0 c. 121,000
b. 275,000 d. 154,000
Problem 3 - On January 1, 2020, San Pablo Co. issued 4,000,000 of 12% bonds payable maturing in 5 years. The bonds pay interest semi-annually on June 30 and December 31. The bonds include share warrants giving the bondholder the right to purchase 8,000 P100 par value shares for 150 per share within the next three years. The bonds and warrants were issued at 120. The value of the warrants at the time of issuance was 750,000. The market rate of interest for similar bonds without the warrants is 10%. All share warrants were exercised on December 31, 2020.
The following were extracted from the present value tables:
5% for 10 periods 6% for 10 periods
Present value of 1 0.61 0.55
Present value of an ordinary annuity of 1 7.72 7.36
1. On January 1, 2020, what amount should be recognized as increase in shareholder's equity as a result of the bond issuance?
a. 833,600 c. 507,200
b. 750,000 d. 292,800
2. What is the total bond premium amortization for the year ended December 31, 2020?
a. 49,452 c. 54,487
b. 51,988 d. 97,600
3. What amount of share premium should be recognized as a result of the exercise of share warrants?
a. 907,200 c. 855,212
b. 400,000 d. 750,000