Cairns owns 70 percent of the voting stock of Hamilton, Incorporated. The parent's interest was acquired several years ago on the date that the subsidiary was formed. Consequently, no goodwill or other allocation was recorded in connection with the acquisition. Cairns uses the equity method in its internal records to account for its investment in Hamilton. On January 1, 2020, Hamilton sold $1,300,000 in 10-year bonds to the public at 105. The bonds had a cash interest rate of 8 percent payable every December 31. Cairns acquired 40 percent of these bonds at 96 percent of face value on January 1, 2022. Both companies utilize the straight-line method of amortization. Required: Prepare the consolidation worksheet entries to recognize the effects of the intra-entity bonds at each of the following dates. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. a. December 31, 2022 Accounts b. December 31, 2023 No 1 Date December 31, 2022 Bonds payable Premium on bonds payable Interest income Investment in bonds Interest expense Gain on retirement of bonds 2 December 31, 2023 Bonds payable Premium on bonds payable Interest income Investment in bonds Interest expense Investment in Hamilton Debit Credit 520,000 520,000 3 December 31, 2024 Bonds payable 520,000 Premium on bonds payable Interest income Investment in bonds Interest expense Investment in Hamilton 39,000 39,000 39,000
Cairns owns 70 percent of the voting stock of Hamilton, Incorporated. The parent's interest was acquired several years ago on the date that the subsidiary was formed. Consequently, no goodwill or other allocation was recorded in connection with the acquisition. Cairns uses the equity method in its internal records to account for its investment in Hamilton. On January 1, 2020, Hamilton sold $1,300,000 in 10-year bonds to the public at 105. The bonds had a cash interest rate of 8 percent payable every December 31. Cairns acquired 40 percent of these bonds at 96 percent of face value on January 1, 2022. Both companies utilize the straight-line method of amortization. Required: Prepare the consolidation worksheet entries to recognize the effects of the intra-entity bonds at each of the following dates. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. a. December 31, 2022 Accounts b. December 31, 2023 No 1 Date December 31, 2022 Bonds payable Premium on bonds payable Interest income Investment in bonds Interest expense Gain on retirement of bonds 2 December 31, 2023 Bonds payable Premium on bonds payable Interest income Investment in bonds Interest expense Investment in Hamilton Debit Credit 520,000 520,000 3 December 31, 2024 Bonds payable 520,000 Premium on bonds payable Interest income Investment in bonds Interest expense Investment in Hamilton 39,000 39,000 39,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Cairns owns 70 percent of the voting stock of Hamilton, Incorporated. The parent's interest was acquired several
years ago on the date that the subsidiary was formed. Consequently, no goodwill or other allocation was recorded
in connection with the acquisition. Cairns uses the equity method in its internal records to account for its
investment in Hamilton.
On January 1, 2020, Hamilton sold $1,300,000 in 10-year bonds to the public at 105. The bonds had a cash interest
rate of 8 percent payable every December 31. Cairns acquired 40 percent of these bonds at 96 percent of face
value on January 1, 2022. Both companies utilize the straight-line method of amortization.
Required:
Prepare the consolidation worksheet entries to recognize the effects of the intra-entity bonds at each of the
following dates.
Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field.
a. December 31, 2022
Accounts
b. December 31, 2023
No
1
Date
December 31,
2022
Bonds payable
Premium on bonds payable
Interest income
Investment in bonds
Interest expense
Gain on retirement of bonds
2
December 31,
2023
Bonds payable
Premium on bonds payable
Interest income
Investment in bonds
Interest expense
Investment in Hamilton
Debit
Credit
520,000
520,000
3
December 31,
2024
Bonds payable
520,000
Premium on bonds payable
Interest income
Investment in bonds
Interest expense
Investment in Hamilton
39,000
39,000
39,000
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