Question

On January 1, 20X5, Pond Corporation purchased 75 percent of Skate Company's stock at underlying book value. At that date, the fair value of the noncontrolling interest was equal to 25 percent of Skate's book value. The balance sheets for Pond and Skate at January 1, 20XS, and December 31, 20X8, and income statements for 20X8 were reported as follows Page 444 20X8 Balance Sheets Pond Corporation Skate Company Cash Accounts Receivable Interest & Other Receivables Inventory Land Buildings & Equipment Accumulated Depreciation Investment in Skate Company January1 S 57.600 130.000 40.000 100,000 50,000 400,000 (150,000) December 31 S 53,100 176,000 45.000 140,000 50,000 400,000 (185.000) January1 $10.000 60.000 S.000 50,000 22,000 240,000 (70,000) December 31 S 47.000 65,000 10,000 50,000 22,000 240,000 (94,000) 122.100 42.800 135,000 $927.500 S 60,000 40.000 300.000 139.050 42.400 134.000 $994,550 S 65,000 45,000 300,000 Stock Bonds Investment in Tin Co. Bonds Total Assets Accounts Payable Interest & Other Payables Bonds Payable Bond Discount Common Stock Additional Paid-In Capital Retained Earnings Total Liabilities &Equities $320,000 $ 16,500 7,000 100.000 (3.500) 30.000 20.000 150,000 $320,000 S340,000 S 11,000 12,000 100,000 (3,000) 30,000 20,000 170,000 S340,000 150.000 155.000 222.500 $927.500 150,000 155,000 279.550 $994,550

Complete the bond related consolidation entries. The information you need is in Additional Information item #3. Do not do the full consolidation.

Answer 1

In books of Skate

		For Face value 100000		Proportionate for 40000
Straight Line Discount Amortization	=	100000 - 95000
		10
	=	$ 500 per year		$ 200 per year
Interest Payment per year	=	100000 * 10%
	=	10000		4000
Interest Expense per year	=	10000 + 500		4000 + 200
	=	10500		4200
Book Value on 31-Dec-20X7	=	95000 + (500*3)
	=	96500		38600

In books of Pond

Straight Line Discount Amortization	=	42800 - 40000
		7
	=	$ 400 per year
Interest Payment per year	=	40000 * 10%
	=	4000
Interest Revenue per year	=	4000 - 400
	=	3600

Though we just need purchase price here

Consolidated statement
Debt Carrying Value	38600
Price Paid to retire	42800
Loss on Purchase	-4200

The above was to explain the concept.

Since, the consolidation on 31-dec-20X8, below balances appear

	Stake's Debt	Pond's Investment
1/1/20X5	38000
31/12/20X5	38200
31/12/20X6	38400
31/12/20X7	38600	42800	Loss : 4200
31/12/20X8	38400	42400

On Consolidation,

Book Value of Debt	38400
Investment balance	42400	-4000
Interest Revenue	3600
Interest Expense	4200	-600
Loss		-4600

Journal Entry

Bonds Payable	Debit	40000
Loss on Consolidation	Debit	4600
Interest Revenue	Debit	3600
Discount on Bonds Payable	Credit	1600
Investment	Credit	42400
Interest Expense	Credit	4200