Constructive Retirement at Beginning of Year
Able Company issued $600,000 of 9 percent first mortgage bonds on January 1, 20X1, at 103. The bonds mature in 20 years and pay interest semiannually on January 1 and July 1. Prime Corporation purchased $400,000 of Able's bonds from the original purchaser on January 1, 20X5, for $396,800. Prime owns 60 percent of Able’s voting common stock.
Required
a. Prepare the worksheet elimination entry or entries needed to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements for 20X5.
b. Prepare the worksheet elimination entry or entries needed to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements for 20X6.
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