Suspect Company issued $600,000 of 9 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 $400,000 of Suspect’s bonds from the original purchaser on January 1, 20X5, for $396,800. Prime owns 60 percent of Suspect’s voting common stock. Note: Assume using straight-line amortization of bond discount or premium. 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. Bond Payable Debit $400,000 Premium on Bond Debit $9,000 Interest Income Debit $______ Investment in Suspect Bond Credit $397,000 Interest Expense Credit $_________ Gain on Bond Retirement Credit $ _________ Interest Payable Debit $18,000 Interest Receivable Credit $18,000 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. Bonds Payable Debit $400,000 Premium on Bonds Debit $8,400 Interest Income Debit $_______ Investment in Suspect Bonds Credit $397,200 Interest Expense Credit $_________ Investment in Suspect Company Credit $________ NCI of NA of Suspect Company Credit $4,800 Interest Payable Debit $18,000 Interest Receivable Debit $18,000
Suspect Company issued $600,000 of 9 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 $400,000 of Suspect’s bonds from the original purchaser on January 1, 20X5, for $396,800. Prime owns 60 percent of Suspect’s voting common stock.
Note: Assume using straight-line amortization of bond discount or premium.
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.
Bond Payable Debit $400,000
Premium on Bond Debit $9,000
Interest Income Debit $______
Investment in Suspect Bond Credit $397,000
Interest Expense Credit $_________
Gain on Bond Retirement Credit $ _________
Interest Payable Debit $18,000
Interest Receivable Credit $18,000
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.
Bonds Payable Debit $400,000
Premium on Bonds Debit $8,400
Interest Income Debit $_______
Investment in Suspect Bonds Credit $397,200
Interest Expense Credit $_________
Investment in Suspect Company Credit $________
NCI of NA of Suspect Company Credit $4,800
Interest Payable Debit $18,000
Interest Receivable Debit $18,000
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