Question

Able Company issued $990,000 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 $660,000 of Able’s bonds from the original purchaser on January 1, 20X5, for $655,800. Prime owns 70 percent of Able’s voting common stock.

Required:

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.)

     

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.)

Answer 1

Answer

A.

Consolidation entry or entries needed to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements for 20X5:

Date	Particulars	Dr	Cr
In 20X5	Bonds payable	660000
	Premium on bonds payable 6600*[103-100])*16/20	15850
	Investment in able co. bonds		655800
	Gain on bonds retirement		20050
	Interest Receivable	$29700
	Interest Payable		$29700
	660000*9%*1/2 =$29700

B.

Consolidation entry or entries needed to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements for 20X6:

Date	Particulars	Dr	Cr
In 20X6	Bonds payable	660000
	Premium on bonds payable 6600*[103-100])*15/20	14850
	Interest income		18850
	Investment in able co. bonds		656000