Question

In: Accounting

On January 1 2000 The Patriot Company purchased all of the stock of the Chief Company...

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?

Solutions

Expert Solution

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)

ekkarill92 answered 3 months ago
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