Question

Able Company issued $1,050,000 of 10 percent first mortgage bonds on January 1, 20X1, at 104. The bonds mature in 20 years and pay interest semiannually on January 1 and July 1. Prime Corporation purchased $700,000 of Able’s bonds from the original purchaser on January 1, 20X5, for $697,800. Prime owns 70 percent of Able’s voting common stock.

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. (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.)

Consolidation Worksheet Entries

A1) Record the entry to eliminate the effects of the intercompany ownership in Able bonds for 20X5.

Note: Enter debits before credits.

Note: Enter debits before credits.

Event	Accounts	Debit	Credit
1

A2) Record the entry to eliminate the intercompany interest receivables/payables for 20X5.

Event	Accounts	Debit	Credit
2

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. (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.)

Consolidation Worksheet Entries

B1) Record the entry to eliminate the effects of the intercompany ownership in Able bonds for 20X6.

Note: Enter debits before credits.

Event	Accounts	Debit	Credit
1

B2) Record the entry to eliminate the intercompany interest receivables/payables for 20X6.

Note: Enter debits before credits.

Note: Enter debits before credits.

Event	Accounts	Debit	Credit
2

	Please show how you get to the answer.

Answer 1

Journal Entry
S. No.	Accoutn Tittle	Debit	Credit
a	Bond Payable A/c	700000
	Premium on Bond Payable A/c ($700000*1.04)-700000)X15/120	3500
	To Investment in Able Co. bond		697800
	To Gain on Bond Retirement		5700
	Interest Receivable	35000
	To Interets Payable ($700000*10%*1/2)		35000
b.	Bond Payable	700000
	Premium on Bond Payable (3500-(3500/(15X2)X2)	3267
	To Investment Income		5467
	To Investment in Able Co. bond		697800