Question

Wood Corporation owns 1 percent of Carter Company’s voting shares. On January 1, 20X3, Carter sold bonds with a par value of $720,000 at 98. Wood purchased $480,000 par value of the bonds; the remainder was sold to nonaffiliates. The bonds mature in five years and pay an annual interest rate of 8 percent. Interest is paid semiannually on January 1 and July 1.

Required:

a. What amount of interest expense should be reported in the 20X4 consolidated income statement? (Do not round your intermediate calculations. Round your final answers to nearest whole dollar.)

b. Prepare the journal entries Wood recorded during 20X4 with regard to its investment in Carter bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your market rate of interest to 3 decimals. For example, .0547523 should be rounded to 5.475%)

c. Prepare all worksheet consolidation entries needed to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements for 20X4. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your market rate of interest to 3 decimals. For example, .0547523 should be rounded to 5.475%)

I think c. is no journal entry required because they only own 1% of the shares.

Answer 1

1) Amount of interest expense for the year 20*4 = 720000*8% = $ 57,600.

2) Since, investment were acquired in 20*3, journal entry for investment acquisition in 20*4 is
(No Entry)

However, for Jan 1, 20*3, acquisition entry was  
Investment in 8% Bonds (480000*98/100) Dr 470,400
To Cash 470,400
(Being investment acquired)

Cash (480000*8%) Dr 38,400
To Interest received on bonds 38,400
(Being interest received for Year 20*4)

3)   no journal entry required because they only own 1% of the shares