E8-9 Retirement of Bonds Sold at a Discount (Effective Interest Method) LO 8-3 F
ID: 2542489 • Letter: E
Question
E8-9 Retirement of Bonds Sold at a Discount (Effective Interest Method) LO 8-3 Farley Corporation owns 70 percent of Snowball Enterprises' stock. On January 1, 20X1, Farley sold $1 million par value, 7 percent (paid semiannually), 20-year, first mortgage bonds to Kling Corporation at 97 On January 1. 20X8, Snowball urchased $300,000 par value of the Farley bonds directly from Kling for $296,880 Required: Prepare the consolidation entry needed at December 31, 20X8, to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements (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.) view transaction list Consolidation Worksheet Entries Record the entry to eliminate the effects of the intercompany ownership in bonds for 20x8. Note: Enter debits before credits. Event Accounts Debit Credit onds payable nterest income oss on constructive bond retirement nvestment in Farley Corporation bonds Interest expense Discount on bonds payableExplanation / Answer
Journal Entry Date Particulars Dr. Amt. Cr. Amt. 1. Bonds Payable 300,000.00 Interest Income 21,240.00 $21,000 + [($300,000 - $296,880)/13] Loss on Constructive Bond Retirement 2,730.00 $296,880 - $294,150 Investment in Farley Corporation Bonds 297,120.00 $296,880 + [(300,000 - 296,880) / 13] Interest Expense 21,450.00 $21,000 + ($9,000 /20 Years) Discount on Bonds Payable 5,400.00 $9,000 X 12/20 Calculation of Book Value of Liability at Constructive Retirement Sale Price of Bonds ($300,000 X 97%) 291,000.00 Amortization of Discount - (300,000 -291,000) X 7/20 3,150.00 Book value of Laibility at Jan 1, 20X8 294,150.00
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