Able Company issued $630,000 of 8 percent first mortgage bonds on January 1, 20X

Question

Able Company issued $630,000 of 8 percent first mortgage bonds on January 1, 20X1, at 104. The bonds mature in 20 years and pay interest semiannually on January 1 and July 1. Prime Corporation purchased $420,000 of Able’s bonds from the original purchaser on December 31, 20X5, for $416,000. Prime owns 70 percent of Able’s voting common stock.

Required:

a. Prepare the worksheet consolidation entry or entries needed to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements for 20X5. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your market rate of interest to 3 decimals. For example, .0547523 should be rounded to 5.475%.)

b. Prepare the worksheet consolidation entry or entries needed to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements for 20X6. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your market rate of interest to 3 decimals. For example, .0547523 should be rounded to 5.475%.)

Explanation / Answer

Events Accounts Debit Credit a) Bonds Payable $420,000.00 Premium on Bonds Payable* $12,600.00                      Investment in Able Company Bonds $416,000.00                      Gain on Bond Retirement (balancing) $16,600.00 * [($420,000 x 1.04) - $420,000] x 15/20 Interest Payable $16,800.00                    Interest Receivable $16,800.00 ($420,000 x 8%/2) b) Bonds Payable $420,000.00 Premium on Bonds Payable $12,600 - [$12,600 / (15 x 2)] x 2 $11,760.00 Interest Income ($420,000 x 8% ) + (($16,600 -$12,600)/(15 x 2)) x 2 $33,866.67                       Investment in Able Company Bonds ($416,000 +( ($16,600 - $12,600)/(15 x 2)) x2 $416,266.67                       Interest Expense ($16800 - ($12,600/15 x 2) x2 $32,760.00                       Investment in Able Co. ($16,600 x 70%) $11,620.00                       NCI in NA of Able Co. ($16,600 x 30%) $4,980.00 Interest Payable $16,800.00 Interest Receivable $16,800.00 ($420,000 x 8%/2)

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.