Suspect Company issued $750,000 of 8 percent first mortgage bonds on January 1, 20X1, at 102....
Suspect Company issued $750,000 of 8 percent first mortgage bonds on January 1, 20X1, at 102. The bonds mature in 20 years and pay interest semiannually on January 1 and July 1. Prime Corporation purchased $500,000 of Suspect’s bonds from the original purchaser on December 31, 20X5, for $492,000. Prime owns 70 percent of Suspect’s voting common stock.
Required:
a. Prepare the worksheet consolidation entry or entries needed to
remove the effects of the intercorporate bond ownership in
preparing consolidated financial statements for 20X5. (If
no entry is required for a transaction/event, select "No journal
entry required" in the first account field. Do not round your
intermediate calculations. Round your final answers to nearest
whole dollar.)
A. Record the entry to eliminate the effects of the intercompany ownership in bonds for 20X5.
B. Record the entry to eliminate the intercompany interest receivables/payables for 20X5.
Homework Answers
Answer:
A)
Date Particulars Debit Credit
20 x 5 Bonds payable 500,000
Premium on bonds payable 11,250
[500,000 x 1.03) - 500,000] x 15/20
Investment in suspect company 4,92,000
Gain on bond retirement 19,250
Interest receivable (500,000 x 8 %) x 1/2 20,000
Interest payable 20,000
20 x 6 Bonds payable 500,000
Premium on bonds payable 8,250
11,250 - [11250/ 15*2]*2]
Interest income 16,250
Investment in Suspect Company 4,92,000
-----------------------------------
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