Pepper Enterprises owns 95 percent of Salt Corporation. On January 1, 20X1, Salt issued $200,000 of five-year bonds at 115. Annual interest of 12 percent is paid semiannually on January 1 and July 1. Pepper purchased $100,000 of the bonds on July 1, 20X3, at par value. The following balances are taken from the separate 20X3 financial statements of the two companies: Salt Corporation Investment in Salt Corporation Bonds Interest Income Interest Receivable Bonds Payable Bond Premium Interest Expense Interest Payable Pepper Enterprises S 100,000 6,000 6,000 $ 200,000 13,475 18,039 12,000 Required: a. Compute the amount of interest expense that should be reported in the consolidated income statement for 20X3. (Do not round your intermediate calculations. Round your final answer to nearest whole dollar.) b. Compute the gain or loss on constructive bond retirement that should be reported in the 20X3 consolidated income statement. (Do not round your intermediate calculations. Round your final answer to nearest whole dollar.) c. Prepare the consolidation worksheet consolidation entry or entries as of December 31, 20X3, to remove the effects of the intercorporate bond ownership. (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.)
Pepper Enterprises owns 95 percent of Salt Corporation. On January 1, 20X1, Salt issued $200,000 of five-year bonds at 115. Annual interest of 12 percent is paid semiannually on January 1 and July 1. Pepper purchased $100,000 of the bonds on July 1, 20X3, at par value. The following balances are taken from the separate 20X3 financial statements of the two companies: Salt Corporation Investment in Salt Corporation Bonds Interest Income Interest Receivable Bonds Payable Bond Premium Interest Expense Interest Payable Pepper Enterprises S 100,000 6,000 6,000 $ 200,000 13,475 18,039 12,000 Required: a. Compute the amount of interest expense that should be reported in the consolidated income statement for 20X3. (Do not round your intermediate calculations. Round your final answer to nearest whole dollar.) b. Compute the gain or loss on constructive bond retirement that should be reported in the 20X3 consolidated income statement. (Do not round your intermediate calculations. Round your final answer to nearest whole dollar.) c. Prepare the consolidation worksheet consolidation entry or entries as of December 31, 20X3, to remove the effects of the intercorporate bond ownership. (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.)
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
ChapterA2: Investments
Section: Chapter Questions
Problem 7MCQ
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Transcribed Image Text:Pepper Enterprises owns 95 percent of Salt Corporation. On January 1, 20X1, Salt issued $200,000 of five-year bonds at
115. Annual interest of 12 percent is paid semiannually on January 1 and July 1. Pepper purchased $100,000 of the bonds
on July 1, 20X3, at par value. The following balances are taken from the separate 20X3 financial statements of the two
companies:
Salt
Corporation
Investment in Salt
Corporation Bonds
Interest Income
Interest Receivable
Bonds Payable
Bond Premium
Interest Expense
Interest Payable
Pepper
Enterprises
S
100,000
6,000
6,000
$ 200,000
13,475
18,039
12,000
Required:
a. Compute the amount of interest expense that should be reported in the consolidated income statement for 20X3. (Do
not round your intermediate calculations. Round your final answer to nearest whole dollar.)
b. Compute the gain or loss on constructive bond retirement that should be reported in the 20X3 consolidated income
statement. (Do not round your intermediate calculations. Round your final answer to nearest whole dollar.)
c. Prepare the consolidation worksheet consolidation entry or entries as of December 31, 20X3, to remove the effects of
the intercorporate bond ownership. (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.)
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