Question

Several years ago Brant, Inc., sold $950,000 in bonds to the public. Annual cash interest of 8 percent ($76,000) was to be paid on this debt. The bonds were issued at a discount to yield 10 percent. At the beginning of 2016, Zack Corporation (a wholly owned subsidiary of Brant) purchased $190,000 of these bonds on the open market for $211,000, a price based on an effective interest rate of 6 percent. The bond liability had a carrying amount on that date of $770,000. Assume Brant uses the equity method to account internally for its investment in Zack.

Several years ago Brant, Inc., sold $950,000 in bonds to the public. Annual cash interest of 8 percent ($76,000) was to be paid on this debt. The bonds were issued at a discount to yield 10 percent. At the beginning of 2016, Zack Corporation (a wholly owned subsidiary of Brant) purchased $190,000 of these bonds on the open market for $211,000, a price based on an effective interest rate of 6 percent. The bond liability had a carrying amount on that date of $770,000. Assume Brant uses the equity method to account internally for its investment in Zack.

Several years ago Brant, Inc., sold $950,000 in bonds to the public. Annual cash interest of 8 percent ($76,000) was to be paid on this debt. The bonds were issued at a discount to yield 10 percent. At the beginning of 2016, Zack Corporation (a wholly owned subsidiary of Brant) purchased $190,000 of these bonds on the open market for $211,000, a price based on an effective interest rate of 6 percent. The bond liability had a carrying amount on that date of $770,000. Assume Brant uses the equity method to account internally for its investment in Zack

What consolidation entry would be required for these bonds on December 31, 2018?

12/31/2018:

Bonds Payable

Interest Income

Investment in Zach

Investment in bonds

Interest expense

Answer 1

Consolidated Entries will be as follows :

In the Books of Brant

Bonds A/c Dr.... 190000

Premium on Bonds A/c Dr. 21000

Interest Income Dr. 15200

To Investment in Zack Corporation 173000

To Discount on Bonds. ... 38000

To Interest Expenses .... 15200