On January 2 2014 Peoples Inc acquired an 80 interest

#6370
On January 2, 2014, Peoples, Inc. acquired an 80% interest in Schmidt Corporation for
$900,000. Schmidt reported total stockholders' equity of $1,000,000 on this date. An
examination of Schmidt's books revealed that book value was equal to fair value for all assets
and liabilities except for inventory, which was undervalued by $60,000. All of the undervalued
inventory was sold during 2014.Peoples also purchased 30% of the $500,000 par value
outstanding bonds of Schmidt Corporation for $140,000 on January 2, 2014. The bonds mature
in 10 years, carry an 11% annual interest rate payable on June 30 and December 31, and had a
carrying value of $505,000 on the date of purchase. Both companies use the straight line
method to amortize bond discounts and premiums.Peoples reported net income of $300,000 for
2014 and paid dividends of $130,000 during 2014. Schmidt Corporation reported net income of
$320,000 for 2011 and paid dividends of $90,000 during the year.Required:Compute the
following items at December 31, 2014:1. Carrying value of the debt.2. Interest revenue reported
by Peoples, Inc.3. Interest expense reported by Schmidt Corporation4. Balance in the
Investment in Schmidt Bonds account.5. Controlling interest in consolidated net income for
2014 using the t-account approach.6. Non controlling interest in consolidated income for
2014.View Solution:
On January 2 2014 Peoples Inc acquired an 80 interest

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