Information Provided in Eliminating Entry
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 eliminating entry:
Bonds Payable | 200,000 |
|
Premium on Bonds Payable | 2,400 |
|
Interest Income | 18,600 |
|
Investment in Gross Corporation Bonds |
| 198,200 |
Interest Expense |
| 17,200 |
Investment in Gross Corporation Stock |
| 4,200 |
NCI in NA of Gross Corporation |
| 1,400 |
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.What amount did Rupp pay when it purchased the bonds on July 1, 20X5?
d.Was a gain or a loss on bond retirement included in the 20X5 consolidated income statement? What amount was reported?
e.If 20X7 consolidated net income of $70,000 would have been reported without the preceding eliminating entry, what amount will actually be reported?
f.Will income to the noncontrolling interest reported in 20X7 increase or decrease as a result of the preceding eliminating entry? By what amount?
g.Prepare the eliminating entry needed to remove the effects of the intercorporate bond ownership in completing a three-part consolidation worksheet at December 31, 20X8.
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