Several years ago Brant, Inc., sold $1,000,000 in bonds to the public. Annual ca

Question

Several years ago Brant, Inc., sold $1,000,000 in bonds to the public. Annual cash interest of 8 percent ($80,000) was to be paid on this debt. The bonds were issued at a discount to yield 10 percent. At the beginning of 2013, Zack Corporation (a wholly owned subsidiary of Brant) purchased $200,000 of these bonds on the open market for $221,000, a price based on an effective interest rate of 6 percent. The bond liability had a book value on that date of $860,000. Assume Brant uses the equity method to account internally for its investment in Zack. a. & b. What consolidation entry would be required for these bonds on December 31, 2013 and December 31, 2015? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Date Consolidating Entries Debit Credit (1) Prepare entry B December 31, 2013 (2) Prepare entry *B December 31, 2015

Explanation / Answer

Debit Credit on 31st Dec 2013 1 Cash 860000 To Bonds 860000 ( Sale of Bond for Cash ) on 31st dec 2015 2 Bonds 1000000 To Cash 1000000 ( Receipt of bond on maturity)

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