Problem 6-28 (LO 6-3) Cairns owns 70 percent of the voting stock of Hamilton, Inc. The...

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Problem 6-28 (LO 6-3) Cairns owns 70 percent of the voting stock of Hamilton, Inc. The parents interest was acquired several

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Answer 1

Answer #1

Bond Issued (2500000*105%)	2,625,000
Less : Face Value of Bond	2,500,000
Premium on bond payable	125,000
Divided : Number of Year for Bond Life	10
Amortization per year	12,500

Carrying value of bond on Jan 1 2016
Carrying value of bond on Jan 1 2014 (2500000*105%)	2,625,000
Less : Amortization For 2014 and 2015 (12500*2)	25,000
Carrying value of bond on Jan 1 2016	2,600,000
*Carrying value of 30% of Bond payable (260000030%)**	780,000

Acquisition cost of bond investment
Face value of bond issued	2,500,000
Multiply : Bond Acquired at (% of total issued)	30%
Face value of Investment	750,000
Multiply : Acquired price at	96%
Acquisition cost of bond investment	720,000
Discount on Investment in Bond (750000-720000)	30,000
Amortization of Discount per year (30000/8 year remaining)	3,750

Gain (loss) On retirement
Carrying value of liability (As per above)	780,000
Less: Acquisition cost of bond investment (250000030%96%)	720,000
Gain (loss) On retirement	60,000
Investment in Hamilton reduced every year (60000/8 year remaining)	7,500

Carrying value of bond on Jan 1 2016	2,600,000
Less: Amortization For the year	12,500
Carrying value of bond on Dec 31,2016	2,587,500
*Carrying value of 30% of Bond payable (258750030%)**	776,250
Premium on bond payable on Dec 31,2016 (776250-750000)	26,250

Carrying value of investment on Dec 31,2016
Acquisition cost of bond	720,000
Add: Amortization of discount for the year	3,750
Carrying value of investment on Dec 31,2016	723,750

Inter entity Interest balance
Interest income
Interest received in cash (750000*10%)	75,000
Add : Amortization of Discount	3,750
Inter entity Interest income	78,750

Interest expense
Interest Paid in cash (750000*10%)	75,000
Less: Amortization of Premium (12500*30%)	3,750
Inter entity interest expense	71,250

Date	General journal	Debit	Credit
December 31, 2016	Bond payable	750,000
	Premium on bond payable	26,250
	interest income	78,750
	Investment in Bond		723,750
	Interest expense		71,250
	Investment in Hamilton		60,000
	*(To record elimination entry for consolidation purpose.)*

December 31, 2017	Bond payable	750,000
	Premium on bond payable (26250-3750)	22,500
	interest income	78,750
	Investment in Bond (723750+3750)		727,500
	Interest expense		71,250
	Investment in Hamilton (60000-7500)		52,500
	*(To record elimination entry for consolidation purpose.)*

December 31, 2018	Bond payable	750,000
	Premium on bond payable (22500-3750)	18,750
	interest income	78,750
	Investment in Bond (727500+3750)		731,250
	Interest expense		71,250
	Investment in Hamilton (52500-7500)		45,000
	*(To record elimination entry for consolidation purpose.)*

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