Prepare the eliminating entries pertaining to the intercompany purchase of bonds for the year ending December 31, 20X5
On January 1, 20X4, Parent Company purchased 90% of the common stock of Subsidiary Company for $360,000. On this date, Subsidiary had common stock, other paid in capital, and
On July 1, 20X4, Subsidiary sold $100,000 par value of 9%, ten-year bonds for $106,755, which resulted in an effective interest rate of 8%. The bonds pay interest semi-annually on January 1 and July 1 of each year. Subsidiary uses the effective-interest method of amortizing the premium.
An amortization table for 20X4 and 20X5 is presented below:
|
Date |
Cash Int |
Interest Exp |
Premium Amort |
Premium Bal |
Carrying Value |
|
7/1/X4 |
|
|
|
6,755 |
106,755 |
|
12/31/X4 |
4,500 |
4,270 |
230 |
6,525 |
106,525 |
|
7/1/X5 |
4,500 |
4,261 |
239 |
6,286 |
106,286 |
|
12/31/X5 |
4,500 |
4,251 |
249 |
6,037 |
106,037 |
On July 1, 20X5, Parent repurchased all of Par's bonds for $94,153, which resulted in an effective interest rate of 10%. The bonds are still held at year end.
Both companies have correctly recorded all entries relative to bonds and interest. The balance in the Investment in Subsidiary Bonds account is $94,361 at December 31, 20X5, and the parent recognized interest income of $4,708 during the period.
Prepare the eliminating entries pertaining to the intercompany purchase of bonds for the year ending December 31, 20X5
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