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Sunday had issued $200,000 of S percent, 10-year bonds on January 1,20X4, at 104. Puzzle had purchased $S0,000 of the bonds f

Complete the bond related consolidation entries. The information you need is in the last paragraph of the problem. Do not do the full consolidation.


Sunday had issued $200,000 of S percent, 10-year bonds on January 1,20X4, at 104. Puzzle had purchased $S0,000 of the bonds from one of the original owners for $78,400 on December 31, 20X5. Both companies use straight-line write-off of premiums and discounts. Interest is paid annually on December 31. Assume Puzzle uses the fully adjusted equity method.
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Answer #1

Bond related consolidation entries:

Entry for bond interest and premium:for Sunday company:

Interest expense 15,200
Bond premium 800
Cash 16,000

Calculation of interest expense for 20x7:

Annual interest payment (200,000x8%) = 16,000

Annual amortization of bond premium ($4800/6 years) = (800)

Interest expense = 15,200

Entry for interest income for Puzzle corporation for 20x7:

Cash 6,400
Investment in Sunday company bonds 200
Interest income 6,600

Cash received for interest on bonds(80,000 x8%) = 6,400

Amortization of discount (80000-78400)/8 years = 200

Total interest income = 6,600   

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