Suspect Company Issued $600,000 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 $400,000 of Suspect's bonds from the original purchaser on December 31, 20X5, for $397,000. Prime owns 60 percent of Suspect's voting common stock. Note: Assume using straight-line amortization of bond discount or premium. 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.) Answer is complete and correct. No Event A 1 Bonds payable Premium on bonds payable Accounts Debit Credit 400,000 9,000 Investment in Suspect Company bonds Gain on bond retirement 397,000 12,000 B 2 Interest payable Interest receivable 18,000 18,000 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 fleld.)
Suspect Company Issued $600,000 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 $400,000 of Suspect's bonds from the original purchaser on December 31, 20X5, for $397,000. Prime owns 60 percent of Suspect's voting common stock. Note: Assume using straight-line amortization of bond discount or premium. 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.) Answer is complete and correct. No Event A 1 Bonds payable Premium on bonds payable Accounts Debit Credit 400,000 9,000 Investment in Suspect Company bonds Gain on bond retirement 397,000 12,000 B 2 Interest payable Interest receivable 18,000 18,000 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 fleld.)
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter9: Long-term Liabilities
Section: Chapter Questions
Problem 15MCQ
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Transcribed Image Text:Suspect Company Issued $600,000 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 $400,000 of Suspect's bonds from the original
purchaser on December 31, 20X5, for $397,000. Prime owns 60 percent of Suspect's voting common stock.
Note: Assume using straight-line amortization of bond discount or premium.
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.)
Answer is complete and correct.
No
Event
A
1
Bonds payable
Premium on bonds payable
Accounts
Debit
Credit
400,000
9,000
Investment in Suspect Company bonds
Gain on bond retirement
397,000
12,000
B
2
Interest payable
Interest receivable
18,000
18,000
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 fleld.)
A
No
Event
1
Bonds payable
Answer is complete but not entirely correct.
Accounts
Premium on bonds payable
Interest income
Investment in Suspect Company bonds
Interest expense
Investment in Suspect Co.
NCI in NA of Suspect Co.
B
2
Interest payable
Interest receivable
Debit
Credit
400,000
8,400
38,200
397,200
6,750 x
6,600 x
4,800
18,000
18,000
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