In: Accounting
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: | ||||||
a) make Patriot's journal entry when they sell the bonds | ||||||
b) make the entry Patriot makes when it makes its first interest payment on July 1, 2014 | ||||||
c) make the entry Chief makes when it purchases the bonds on January 1, 2019 | ||||||
d) make the entry Chief makes when it receives its first interst payment on July 1 2019 | ||||||
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? |
Solution: | |||
Date | Account Title and Description | Debit | Credit |
Requirment-(a) | |||
1-Jan-14 | Cash | 530,000 | |
Premium on Bonds Payable | 30,000 | ||
Bonds Payable | 500,000 | ||
(To record issuance of 8% semi annual 20 year bonds at premium) | |||
Requirment-(b) | |||
1-Jul-14 | 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)) | |||
Requirment-(c) | |||
1-Jan-19 | Investment in Patriot bonds | 500,000 | |
Discounts on Investment in bonds | 15,000 | ||
Cash | 485,000 | ||
(To record purchase of Patriot bonds at discounts) | |||
Requirment-(d) | |||
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) |