In: Accounting
Several years ago Brant, Inc., sold $960,000 in bonds to the public. Annual cash interest of 7 percent ($67,200) was to be paid on this debt. The bonds were issued at a discount to yield 10 percent. At the beginning of 2016, Zack Corporation (a wholly owned subsidiary of Brant) purchased $120,000 of these bonds on the open market for $141,000, a price based on an effective interest rate of 5 percent. The bond liability had a carrying amount on that date of $820,000. Assume Brant uses the equity method to account internally for its investment in Zack.
a. & b. What consolidation entry would be required for these bonds on December 31, 2016 and December 31, 2018? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate answers to nearest whole number.)
Book Value | 102500 | = 820000*120000/960000 | |
Loss on Repurchase | 38500 | = 141000-102500 | |
For the Year ended Dec 2016 | |||
Interest Income | 7050 | = 141000*5% | |
Interest Expense | 10250 | = 102500*10% | |
Cash Interest | 8400 | = 120000*7% | |
Premium Amortization | 1350 | = 8400-7050 | |
Investment | 139650 | = 141000-1350 | |
Discount Amortization | 1850 | = 10250-8400 | |
Bonds Payable | 104350 | = 102500+1850 | |
Journal Entry for Entry B | |||
12/31/2016 | Bonds Payable | 104350 | |
Interest Income | 7050 | ||
Loss on Retirement of Debts | 38500 | ||
Investment in Bonds | 139650 | ||
Interest Expense | 10250 | ||
For the Year ended Dec 2017 | |||
Interest Income | 6983 | = 139650*5% | |
Interest Expense | 10435 | = 104350*10% | |
Book Value 1/1/2017 | 139650 | ||
Premium Amortization | 1417 | = 8400-6983 | |
Investment Balance 12/31/2017 | 138233 | ||
Book Value 1/1/2017 | 104350 | ||
Discount Amortization | 2035 | = 10435-8400 | |
Bonds Payable Balance 12/31/2017 | 106385 | ||
For the Year ended Dec 2018 | |||
Interest Income | 6912 | = 138233*5% | |
Interest Expense | 10639 | = 106385*10% | |
Book Value 1/1/2018 | 138233 | ||
Premium Amortization | 1488 | = 8400-6912 | |
Investment Balance 12/31/2018 | 136745 | ||
Book Value 1/1/2018 | 106385 | ||
Discount Amortization | 2239 | = 10639-8400 | |
Bonds Payable Balance 12/31/2018 | 108624 | ||
Loss on Retirement of Debts | 38500 | ||
Interest Income | 13895 | = 6983+6912 | |
Interest Expense | -21074 | = -10435-10639 | |
Consolidated Total | 31321 | ||
Journal Entry for Entry B | |||
12/31/2018 | Bonds Payable | 108624 | |
Interest Income | 6912 | ||
Loss on Retirement of Debts | 31321 | ||
Investment in Bonds | 136745 | ||
Interest Expense | 10639 |