Question

On January 1 2000 The Patriot Company purchased all of the stock of the Chief Company at book value
Patriot accounts for its investment in Chief using the initial value method and Chief does not pay dividends
On January 1, 2014 Patriot Company issued (sold) $500,000 8% semi-annual bonds for $530,000
These 20 year bonds pay interest on July 1 and January 1 of each year. Patriot uses straight-line amortization
On January 1, 2019 Chief Company purchased the Patriot bonds for $485000. Chief also uses straight-line
amortization
REQUIRED:
e) make the necessary worksheet entries needed in 2019
f) In 2019, Patriot reported income of $300,000 (unconsolidated) and Chief reported income
of $25,000. What is consolidated income?
g) make the necessary worksheet entries needed in 2020
h) in 2020, Patriot reported income of $300,000 (unconsolidated) and Chief reported income
of $25,000. What is consolidated income?

Answer 1

Requirment-(e)
Date	Account Title and Description	Debit	Credit
	In the books of Patriot company
1-Jan-19	Interest Expenses (500,000 x 8% x 0.5 Year)	20,000
	Premium on bonds payable	750
	Cash		20,750
	(to record interest expenses payment and amortisation of Primium on bonds payable (30,000 x 0.5/20 year))
1-Jul-19	Interest Expenses (500,000 x 8% x 0.5 Year)	20,000
	Premium on bonds payable	750
	Cash		20,750
	(to record interest expenses payment and amortisation of Primium on bonds payable (30,000 x 0.5/20 year))
	In the books of Chief company
1-Jul-19	Cash	19,500
	Discounts on Investment in bonds	500
	Interest income (500,000 x 8% x 0.5 year)		20,000
	(To record interest income and amortization of Discount on investment in Patriot bonds (15,000 x 0.5 year/15 years)
Requirment-(f)
	Computation of consolidated income in 2019
	Particulars	$	$
	Patriot income	300,000
	Chief income	25,000	325,000
	Adjustment:
	Interest expenses	40,000
	Premium on bonds payable amortized	1,500
	Interest income	-40,000
	Discounts on Investment in bonds amortized	500	2,000
	Consolidated income		327,000
Requirment-(g)
Date	Account Title and Description	Debit	Credit
	In the books of Patriot company
1-Jan-20	Interest Expenses (500,000 x 8% x 0.5 Year)	20,000
	Premium on bonds payable	750
	Cash		20,750
	(to record interest expenses payment and amortisation of Primium on bonds payable (30,000 x 0.5/20 year))
1-Jul-20	Interest Expenses (500,000 x 8% x 0.5 Year)	20,000
	Premium on bonds payable	750
	Cash		20,750
	(to record interest expenses payment and amortisation of Primium on bonds payable (30,000 x 0.5/20 year))
	In the books of Chief company
1-Jan-20	Cash	19,500
	Discounts on Investment in bonds	500
	Interest income (500,000 x 8% x 0.5 year)		20,000
	(To record interest income and amortization of Discount on investment in Patriot bonds (15,000 x 0.5 year/15 years)
1-Jul-20	Cash	19,500
	Discounts on Investment in bonds	500
	Interest income (500,000 x 8% x 0.5 year)		20,000
	(To record interest income and amortization of Discount on investment in Patriot bonds (15,000 x 0.5 year/15 years)
Requirment-(h)
	Computation of consolidated income in 2020
	Particulars	$	$
	Patriot income	300,000
	Chief income	25,000	325,000
	Adjustment:
	Interest expenses	40,000
	Premium on bonds payable amortized	1,500
	Interest income	-40,000
	Discounts on Investment in bonds amortized	1,000	2,500
	Consolidated income		327,500