Information Provided in Elimination Entry (Straight-Line Method) Gross Corporatio...

Information Provided in Elimination Entry (Straight-Line Method)

Gross Corporation issued $500,000 par value 10-year bonds at 104 on January 1, 20X1, which Independent Corporation purchased. On July 1, 20X5, Rupp Corporation purchased $200,000 of Gross bonds from Independent. The bonds pay 9 percent interest annually on December 31. The preparation of consolidated financial statements for Gross and Rupp at December 31, 20X7, required the following elimination entry:

Required

With the information given, answer each of the following questions. Show how you derived your answer.

a. Is Gross or Rupp the parent company? How do you know?

b. What percentage of the subsidiary’s ownership does the parent hold?

c. If 20X7 consolidated net income of $70,000 would have been reported without the preceding elimination, what amount will actually be reported?

d. Will income to the noncontrolling interest reported in 20X7 increase or decrease as a result of the preceding elimination entry? By what amount?

e. Prepare the elimination entry needed to remove the effects of the intercorporate bond ownership in completing a three-part consolidation worksheet at December 31, 20X8.