Problem

Prior Retirement of BondsAmazing Corporation purchased $100,000 par value bonds of its sub...

Prior Retirement of Bonds

Amazing Corporation purchased $100,000 par value bonds of its subsidiary, Broadway Company, on December 31, 20X5, from Lemon Corporation. The 10-year bonds bear a 9 percent coupon rate and were originally sold by Broadway on January 1, 20X3, to Lemon. Interest is paid annually on December 31. Amazing owns 85 percent of the stock of Broadway.

In preparing the consolidation worksheet at December 31, 20X6, Amazing's controller made the following entry to eliminate the effects of the intercorporate bond ownership:

Bonds Payable

100,000

 

Interest Income

8,600

 

Investment in Broadway Company Stock

5,355

 

NCI in NA of Broadway Company

945

 

Investment in Broadway Company Bonds

 

102,400

Discount on Bonds Payable

 

3,000

Interest Expense

 

9,500

Required

With the information given, answer the following questions:

a.What amount did Amazing pay when it purchased Broadway's bonds?


b.Prepare the journal entry made by Broadway in 20X6 to record its interest expense for the year.


c.Prepare the journal entry made by Amazing in 20X6 to record its interest income on the Broad­way bonds that it holds.


d.Prepare the eliminating entry to remove the effects of the intercorporate bond ownership in completing a three-part consolidation worksheet at December 31, 20X5.


e.Broadway reported net income of $60,000 and $80,000 for 20X5 and 20X6, respectively. Amazing reported income from its separate operations of $120,000 and $150,000 for 20X5 and 20X6, respectively. What amount of consolidated net income and income to the controlling interest will be reported in the consolidated income statements for 20X5 and 20X6?

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