Question

On January 1, 2000 Apple Company acquired all of the stock of Pear Company at book value. Apple accounts for its investment in Pear using the initial value method and Pear doesn't pay any dividends.

On January 1st 2015 Pear Company issued $1,000,000 face value bonds for $930,000 These 7% bonds pay interest each July 1 and January 1. Pear uses straight line amortization on these 20 year bonds.

On January 1, 2020, Apple Company acquired all of the Pear bonds for $955,000.

1. Make the necessary worksheet entries for 2020

2. In 2020, Apple reported unconsolidated income of $900,000 and Pear reported income of $100,000 what is consolidated income

3. make the necessary worksheet entries for 2021

4. in 2021, Apple reported unconsolidated inocme of $800,000 and Pear reported income $125,000 what is consolidated income

Answer 1

Answer :-

Requirment-(1)
Date	Account Title and Description	Debit	Credit
	In the books of Patriot company
1-Jan-2020	Interest Expenses ($1,000,000x 7% x 0.5 Year)	$35,000
	Premium on bonds payable	$1,750
	Cash		$36,750
	(to record interest expenses payment and amortisation of Primium on bonds payable (70,000 x 0.5/20 year))
1-Jul-2020	Interest Expenses ($1,000,000x 7% x 0.5 Year)	$35,000
	Premium on bonds payable	$1,750
	Cash		$36,750
	(to record interest expenses payment and amortisation of Primium on bonds payable (70,000 x 0.5/20 year))
	In the books of Chief company
1-Jul-2020	Cash	$33,500
	Discounts on Investment in bonds	$1,500
	Interest income ($1,000,000*7%*0.5 yaear)		$35,000
	(To record interest income and amortization of Discount on investment in Patriot bonds 45,000 x 0.5 year/15 years)
Requirment-(2)
	Computation of consolidated income in 2019
	Particulars	$	$
	Patriot income	900,000
	Chief income	100,000	1,000,000
	Adjustment:
	Interest expenses	$70,000
	Premium on bonds payable amortized	$3,500
	Interest income	-$70,000
	Discounts on Investment in bonds amortized	$1,750	$5,250
	Consolidated income		$994,750
Requirment-(3)
Date	Account Title and Description	Debit	Credit
	In the books of Patriot company
1-Jan-2021	Interest Expenses ($1,000,000*7%*0.5year)	$35,000
	Premium on bonds payable	$1,750
	Cash		$36,750
	(to record interest expenses payment and amortisation of Primium on bonds payable ((70,000 x 0.5/20 year)))
1-Jul-2021	Interest Expenses($1,000,000*7%*0.5year))	$35,000
	Premium on bonds payable	$1,750
	Cash		$36,750
	(to record interest expenses payment and amortisation of Primium on bonds payable (70,000 x 0.5/20 year))
	In the books of Chief company
1-Jan-2021	Cash	$33,500
	Discounts on Investment in bonds	$1,500
	Interest income( $1,000,000*7%*0.5 year)		$35,000
	(To record interest income and amortization of Discount on investment in Patriot bonds(45,000 x 0.5 year/15 years)
1-Jul-2021	Cash	$33,500
	Discounts on Investment in bonds	$1,500
	Interest income ( $1,000,000*7%*0.5 year)		$35,000
	(To record interest income and amortization of Discount on investment in Patriot bonds(45,000 x 0.5 year/15 years)
Requirment-(4)
	Computation of consolidated income in 2020
	Particulars	$	$
	Patriot income	800,000
	Chief income	125,000	925,000
	Adjustment:
	Interest expenses	$70,000
	Premium on bonds payable amortized	$3,500
	Interest income	-70,000
	Discounts on Investment in bonds amortized	$3,000	6,500
	Consolidated income		$918,500