Amazing Corporation purchased $100,000 par value bonds of its subsidiary, Broadw
ID: 2333648 • Letter: A
Question
Amazing Corporation purchased $100,000 par value bonds of its subsidiary, Broadway Company, on December 31, 20X5 from Lemon Corporation for $102,800. The 10-year bonds bear a 9 percent coupon rate, and Broadway originally sold them on January 1, 20X3, to Lemon at 95. Interest is paid annually orn 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 Interest Income Retained Earnings, January Noncontrolling Interest 100.000 8691 741 013 Investmens in Broadway Compary Bonds Discount on Bonds Payable 102491 3.535 419 Required With the information given, answer the following questions: Prepare the journal entry made by Amazing in 20X6 to record its interest income on the Broadway bonds that it holds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round your intermediate calculations. Round your final answers to nearest whole dollar.) Journal entry worksheet Record the entry for interest income Note: Enter debits before eredts Debit CreditExplanation / Answer
Amount paid by Amazing Corporation for bonds:
Reported balance, December 31, 20X6
$102,400
Amortization of premium during 20X6
($2,400 / 6 years)
400
Purchase price
$102,800
Interest Expense
9,500
Discount on Bonds Payable
500
Cash
9,000
Annual payment of interest:
$9,500 = [$9,000 + ($3,000 / 6 years)]
a.
Cash
9,000
Investment in Broadway Company Bonds
400
Interest Income
8,600
Annual receipt of interest:
$8,600 = [$9,000 - ($2,400 / 6 years)]
b.
Bonds Payable
100,000
Loss on Bond Retirement
6,300
Investment in Broadway Company Bonds
102,800
Discount on Bonds Payable
3,500
Eliminate intercorporate bond holdings:
$6,300 = $102,800 - [$97,000 -
($3,000 / 6 years)]
$102,800 = computed above
$3,500 = [$3,000 + ($3,000 / 6 years)]
c.
Consolidated net Income and income to controlling interest for 20X5 and 20X6:
20X5
20X6
Operating income reported by Amazing
$120,000
$150,000
Net income reported by Broadway
60,000
80,000
Loss on bond retirement
(6,300)
Adjustment for excess of interest expense
($9,500) over interest income ($8,600)
900
Consolidated net income
$173,700
$230,900
Income to noncontrolling interest:
($60,000 - $6,300) x .15
(8,055)
($80,000 + $900) x .15
(12,135)
Income to controlling interest
$165,645
$218,765
Amount paid by Amazing Corporation for bonds:
Reported balance, December 31, 20X6
$102,400
Amortization of premium during 20X6
($2,400 / 6 years)
400
Purchase price
$102,800
Interest Expense
9,500
Discount on Bonds Payable
500
Cash
9,000
Annual payment of interest:
$9,500 = [$9,000 + ($3,000 / 6 years)]
a.
Cash
9,000
Investment in Broadway Company Bonds
400
Interest Income
8,600
Annual receipt of interest:
$8,600 = [$9,000 - ($2,400 / 6 years)]
b.
Bonds Payable
100,000
Loss on Bond Retirement
6,300
Investment in Broadway Company Bonds
102,800
Discount on Bonds Payable
3,500
Eliminate intercorporate bond holdings:
$6,300 = $102,800 - [$97,000 -
($3,000 / 6 years)]
$102,800 = computed above
$3,500 = [$3,000 + ($3,000 / 6 years)]
c.
Consolidated net Income and income to controlling interest for 20X5 and 20X6:
20X5
20X6
Operating income reported by Amazing
$120,000
$150,000
Net income reported by Broadway
60,000
80,000
Loss on bond retirement
(6,300)
Adjustment for excess of interest expense
($9,500) over interest income ($8,600)
900
Consolidated net income
$173,700
$230,900
Income to noncontrolling interest:
($60,000 - $6,300) x .15
(8,055)
($80,000 + $900) x .15
(12,135)
Income to controlling interest
$165,645
$218,765
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