Question

Fargus Corporation owned 51% of the voting common stock of Sanatee, Inc. The parent's interest was acquired several years ago on the date that the subsidiary was formed. Consequently, no goodwill or other allocation was recorded in connection with the acquisition price.

On January 1, 2010, Sanatee sold $1,400,000 in ten-year bonds to the public at 108. The bonds pay a 10% interest rate every December 31. Fargus acquired 40% of these bonds on April 1, 2012, for 95% of the face value. Both companies utilized the straight-line method of amortization.

a.) Prepare amortization tables for Fargus (4/1/2012 to 12/31/2013) and (1/1/2010 to 12/31/2013)

Answer 1

Book value of Bonds payable on Jan 1, 2010
(14000 x $108)	$1,512,000
Less: Premium amortization for
2 years ($112000/10years x 2years)	($22,400)
Book value of Bonds payable on Jan 1, 2012	$1,489,600
40% of Book Value on Jan 1, 2012	$595,840
40% of face value of bonds ($1400000 x 40%)	$560,000
Book value of Bonds for Fargus ($560000 x 95%)	$532,000
Discount on Bonds	$28,000
Amortization of Bond Discount ($28000/8 years)	$3,500
Interest on Bond = $560000 x 10% = $56000

Amortization table for Fargus (4/1/2012 to 12/31/2013)
Date	Interest	Discount amortized	Cash Received	Bond Balance
4/1/2012				$532,000
12/31/2012	56000	3500	52500	$535,500
12/31/2013	56000	3500	52500	$539,000
Amortization table for Sanatee (1/1/2010 to 12/31/2013)
Date	Interest exp.	Premium amortization	Cash Paid	Balance in Bonds Premium	Balance in Bonds Payable	Book value of Bonds
1/1/2010				$112,000	$1,400,000	$1,512,000
12/31/2010	$140,000	$11,200	$151,200	$100,800	$1,400,000	$1,500,800
12/31/2011	$140,000	$11,200	$151,200	$89,600	$1,400,000	$1,489,600
12/31/2012	$140,000	$11,200	$151,200	$78,400	$1,400,000	$1,478,400
12/31/2013	$140,000	$11,200	$151,200	$67,200	$1,400,000	$1,467,200