Question

Able Company issued $1,050,000 of 10 percent first mortgage bonds on January 1, 20X1, at 104....

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
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Homework Answers

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
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