Question

Sun Company is a 100%-owned subsidiary of Peter Company. On January 1, 2019, Sun Company has $500,000 of 8% bonds outstanding, with an unamortized discount of $5,000 that is being amortized on a straight-line basis over a 5-year remaining life to maturity. On that date, Peter Company purchased the bonds for $497,000. The bonds pay interest annually on December 31 and Peter amortizes the discount on its bond investment on a straight-line basis.

Peter’s trial balance at December 31, 2019, includes the following with respect to the bonds [parentheses indicate a credit balance]:

Investment in Sun Bonds                             $497,600

Interest Revenue                                               (40,600)

Sun’s trial balance at December 31, 2019, includes the following with respect to the bonds:

Bonds Payable                                                  $(500,000)

Discount on Bonds Payable                                 4,000

Interest Expense                                                   41,000

Required:

1. Prepare the consolidation worksheet entry in journal entry form that would be made with respect to Sun’s bonds.
2. Prepare the journal entry that Peter would have made on its books when it received the interest payment from Sun on December 31, 2019.   

Answer 1