Direct Sale of Bonds to Parent (Effective Interest Method) On January 1, 20X1, Fe...

Direct Sale of Bonds to Parent (Effective Interest Method)

On January 1, 20X1, Fern Corporation paid Morton Advertising $116,200 to acquire 70 percent of Vincent Company’s stock. Fern also paid $45,000 to acquire $50,000 par value 8 percent, 10-year bonds directly from Vincent on that date. This purchase represented ½ of the bonds that were originally issued. Interest payments are made on January 1 and July 1. The fair value of the noncontrolling interest at January 1, 20X1, was $49,800, and book value of Vincent’s net assets was $110,000. The book values and fair values of Vincent’s assets and liabilities were equal except for buildings and equipment, which had a fair value $56,000 higher than book value and a remaining economic life of 14 years at January 1, 20X1.

On July 1, 20X2, Vincent sold land that it had purchased for $17,000 to Fern for $25,000. Fern continues to hold the land at December 31, 20X3. Assume Fern Corporation uses the fully adjusted equity method.

Required

a. Record the journal entries for 20X3 on Fern’s books related to its investment in Vincent’s stock and bonds.

b. Record the entries for 20X3 on Vincent’s books related to its bond issue.

c. Prepare elimination entries needed to complete a consolidation worksheet for 20X3.

d. Prepare a three-part consolidation worksheet for 20X3.