On 1/1/yr1 S issued bonds with a face value of $500,000, a
coupon rate of 9%, that pay interest annually, mature in ten years,
to yield 10%. On 1/1/YR1 issue proceeds totaled $469,277. On
1/1/YR3 P acquires 50% of the bonds off the open market to yield
8%. P’s purchase price given the market rate of 8% is $264,367. S’s
book value of the bonds on 1/1/yr3 was $473,325.
PART 1:
On the consolidated 12/31/yr3 balance sheet the bonds should be
reported at a book value of (+/- $5)
a) $273,820.
b) 263,016.
c) $475,658
d) $264,367
e) None of the above
Part 2:
On the consolidated 12/31/yr3 balance sheet P’s investment in
S’s bonds should be reported at a book value of (+/- $5):
a) $0
b) $263,016.
c) $264,367.
d) None of the above