Question

Case Facts:

Monterey Company owns a majority voting interest in Del Rey, Inc. On January 1, 2017, Monterey issued $1,000,000 of 8 percent 10-year bonds at $935,823.42 to yield 9 percent. On January 1, 2019, Del Rey purchased all of these bonds in the open market at a price of $946,650.74 with an effective yield of 10 percent.

1.In the space provided, prepare amortization schedules for the Monterey Company bonds payable and the Investment in Monterey Bonds for Del Rey, Inc.

2.In the space provided, prepare consolidation worksheet entry “B” required at December 31, 2019 to reflect the effective retirement of the Monterey bonds.

Answer 1

Answer point no. 1

Face value : $1000000

Interest rate : 8%

period : 10 years

Issued price : $ 935823.42

Yield rate = 9%

amortization schedules for the Monterey Company bonds payable

Year	Price at the beginning of year	Yield @ 9%	Interest @ 8% on 1000000	Price at closing of the year
2017	935,823	84,224	80,000	940,048
2018	940,048	84,604	80,000	944,652
2019	944,652	85,019	80,000	949,670
2020	949,670	85,470	80,000	955,141
2021	955,141	85,963	80,000	961,103
2022	961,103	86,499	80,000	967,603
2023	967,603	87,084	80,000	974,687
2024	974,687	87,722	80,000	982,409
2025	982,409	88,417	80,000	990,826
2026	990,826	89,174	80,000	1,000,000
2027	1,000,000

Consolidated worksheet entry on Dec. 31, 2019

	Debit $	Credit $
Bond Payable	949670
Interest income	94665
Loss on retirement	2000
Gain on retirement		0
Investment in Bonds		961316
Interest Expenses		85019

Amortisation schedule for Investment in Monterey Bonds for Del Rey, Inc.

Year	Price at the beginning of year	Yield @ 10%	Interest @ 8% on 1000000	Price at closing of the year
2019	946,651	94,665	80,000	961,316
2020	961,316	96,132	80,000	977,447
2021	977,447	97,745	80,000	995,192
2022	995,192	99,519	80,000	1,014,711
2023	1,014,711	101,471	80,000	1,036,182
2024	1,036,182	103,618	80,000	1,059,801
2025	1,059,801	105,980	80,000	1,085,781
2026	1,085,781	108,578	80,000	1,114,359
2027	1,114,359