Unformatted Attachment Preview
Able Company issued $720,000 of 10 percent first mortgage bonds on January 1, 20X1, at 103.
The bonds mature in 20 years and pay interest semiannually on January 1 and July 1. Prime
Corporation purchased $480,000 of Able’s bonds from the original purchaser on December 31,
20X5, for $473,000. Prime owns 60 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%.)
1. Record the entry to eliminate the effects of the intercompany ownership in Able bonds for
20X5.
2. Record the entry to eliminate the effects of the intercompany ownership in Able bonds for
20X5.
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%.)
1. Record the entry to eliminate the effects of the intercompany ownership in Able bonds for
20X6.
2. Record the entry to eliminate the intercompany interest receivables/payables for 20X6.
Solution:
a.
Event
Account title
Debit $
Bonds Payable
480,000
Premium on Bonds Payable
10,800
Credit $
Investment in A Company bonds
473,000
Gain on Bond Retirement
17,800
Interest Payable
Interest Receivable
[(480,000 x 1.03) – 480,000] x 15/20 = $10,800
10,800 + 480,000 - 473,000 = $17,800
480,000 x 10% x ½ = $24,000
24,000
24,000
b.
Event
Account title
Debit $
Bonds Payable
480,000
Premium on Bonds Payable
10,080
interest income
48,320
Credit $
Investment in Able Company bonds
473,200
Interest Expense
47,400
Investment in Able Co
10,680
NCI in NA of Able Co.
7,120
Interest Payable
Interest Receivable
10,800 – [10,800 / (15 x 2)] x 2 = $10,080
473,000 + ($100 x 2 = 473,200
48,000 – (300 x 2) = 47,400
17,800 x 0.60 = 10,680
17,800 x 0.40 = 7,120
480,000 x 10% x ½ = $24,000
24,000
24,000
Able Company issued $720,000 of 10 percent first mortgage bonds on January 1, 20X1, at 103.
The bonds mature in 20 years and pay interest semiannually on January 1 and July 1. Prime
Corporation purchased $480,000 of Able’s bonds from the original purchaser on December 31,
20X5, for $473,000. Prime owns 60 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%.)
1. Record the entry to eliminate the effects of the intercompany ownership in Able bonds for
20X5.
2. Record the entry to eliminate the effects of the intercompany ownership in Able bonds for
20X5.
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%.)
1. Record the entry to eliminate the effects of the intercompany ownership in Able bonds for
20X6.
2. Record the entry to eliminate the intercompany interest receivables/payables for 20X6.
Solution:
a.
Event
Account title
Debit $
Bonds Payable
480,000
Premium on Bonds Payable
7,000
Credit $
Investment in A Company bonds
473,000
Gain on Bond Retirement
14,000
Interest Payable
Interest Receivable
480,000 x 10% x ½ = $24,000
24,000
24,000
b.
Event
Account title
Debit $
Bonds Payable
480,000
Premium on Bonds Payable
7,000
interest income
24,000
Credit $
Investment in Able Company bonds
473,000
Interest Expense
24,000
Investment in Able Co
7,000
NCI in NA of Able Co.
7,000
Interest Payable
Interest Receivable
480,000 x 10% x ½ = $24,000
24,000
24,000
Able Company issued $720,000 of 10 percent first mortgage bonds on January 1, 20X1, at 103. The bonds
mature in 20 years and pay interest semiannually on January 1 and July 1. Prime Corporation purchased
$480,000 of Able's bonds from the original purchaser on December 31, 20X5, for $473,000. Prime owns 60
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%.)
Event
Accounts
Debit Credit
1 Bonds payable
480,000
Premium on bonds payable
7,000 X
Investment in Able Company bonds
473,000
Gain on bond retirement
14,000X
2 Interest payable
24,000
Interest receivable
24,000
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%.)
Event
Accounts
Debit Credit
1
Bonds payable
480,000
Premium on bonds payable
7,000X
Interest income
24,000X
Investment in Able Company bonds
473,200X
Interest expense
24,000 X
Investment in Able Company
7,000X
NCI in NA of Able Company
7,000X
2
24,000
Interest payable
Interest receivable
24,000
Able Company issued $720,000 of 10 percent first mortgage bonds on January 1, 20X1, at 103. The bonds
mature in 20 years and pay interest semiannually on January 1 and July 1. Prime Corporation purchased
$480,000 of Able's bonds from the original purchaser on December 31, 20X5, for $473,000. Prime owns 60
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%.)
Event
Accounts
Debit Credit
1
Bonds payable
480,000
Premium on bonds payable
10,800X
Investment in Able Company bonds
473,000
Gain on bond retirement
17,800X
2 Interest payable
24,000
Interest receivable
24,000
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%.)
Event
Accounts
Debit Credit
1 Bonds payable
480,000
Premium on bonds payable
10,080X
Interest income
48,320X
Investment in Able Company bonds
473,200X
Interest expense
47,400X
Investment in Able Company
10,680X
NCI in NA of Able Company
7,120X
Interest payable
24,000
Interest receivable
24,000
N