Question

Several years ago Brant, Inc., sold $960,000 in bonds to the public. Annual cash interest of 7 percent ($67,200) 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 $160,000 of these bonds on the open market for $181,000, a price based on an effective interest rate of 5 percent. The bond liability had a carrying amount on that date of $840,000. Assume Brant uses the equity method to account internally for its investment in Zack. a. & b. What consolidation entry would be required for these bonds on December 31, 2016 and December 31, 2018? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate answers to nearest whole number.) Consolidation Worksheet Entries 2 Prepare Entry B to eliminate the intra-entity debt holdings and to recognize the oss on retirement. Note: Enter debits before credits. Date Accounts Debit Credit December 31, 2016 Consolidation Worksheet Entries 2 Prepare Entry *B to eliminate the intra-entity bond holdings and to adjust the investment in Zack for the unrecognized loss on retirement. Note: Enter debits before credits Date Accounts Debit Credit December 31, 2018

Answer 1

Particulars Book Value Loss on Repurchase For the Year ended Dec 2016 Interest Income Interest Expense Cash Interest Premium Amortization Investment Discount Amortization Bonds Payable Amount (S) 140000 840000*160000/960000 410001181000-140000 90501 181000+5% 14000 140000 10% 1 1 2001 1 60000 * 790 215011200-9050 178850181000-2150 2800 14000-11200 142800140000+2800 6 8

Particulars Debit (S) Credit (S) 14 Date 15 16 12/31/2016 Bonds Payable 17 18 19 20 21 Journal Entry for Entry B nterest Income Loss on Retirement of Debts 142800 9050 41000 Investment in Bonds 178850 14000 Interest Expense For the Year ended Dec 2017 nterest Income Interest Expense 89431 178850*590 142801 142800* 1090 23 24 25 26 27 28 29 30 31 32 178850 Book Value 1/1/2017 Premium Amortization Investment Balance 12/31/2017 2257 11200-8943 176593 142800 Book Value 1/1/2017 Discount Amortization Bonds Payable Balance 12/31/2017 3080 14280-11200 145880 34 35 36 For the Year ended Dec 2018 nterest Income Interest Expense 88301 176593 * 590 145881145880*10%

37 38 39 40 41 42 43 176593 Book Value 1/1/2018 Premium Amortization Investment Balance 12/31/2018 237011200-8830 174223 145880 Book Value 1/1/2018 Discount Amortization Bonds Payable Balance 12/31/2018 3388 14588-11200 149268 45 46 47 48 49 50 51 Loss on Retirement of Debts Interest Income Interest Expense Consolidated Total 41000 17773 8943+8830 -288681(-14280-14588) 9905 Journal Entry for Entry B 52 12/31/2018 53 54 Bonds Payable Interest Income Loss on Retirement of Debts 149268 8830 9905 Investment in Bonds 174223 13780 56 Interest Expense