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Lewis Company owns 75% of the voting common stock of Bosch, Inc. On January 1, 2015,...

Lewis Company owns 75% of the voting common stock of Bosch, Inc. On January 1, 2015, Bosch sold $1,400,000 in ten-year bonds to the public at 105. The bonds pay a 10% interest rate every December 31. Lewis Company acquired 40% of these bonds on January 1, 2017, for 95% of the face value. Both companies utilizes the straight-line method of amortization.

What consolidation entry would be recorded in connection with these intra-entity bonds on December 31, 2017?

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Expert Solution

Book value of bonds payable Jan 1, 2015
Book value, Jan 1, 2017 (1400000 * 1.05) original issue $ 14,70,000.00
Amortization (112000/10 * 2) $      -14,000.00
Book value of bonds payable as on Jan 1 2017 $ 14,56,000.00
Book value of 40% of bonds payable $    5,82,400.00
Gain on retirement of bonds, Jan 1, 2017
Purchaseprice (560000 * 95%) of investment $ -5,32,000.00
Book value of liability $    5,82,400.00
Gain on retirement of bonds $       50,400.00
Book value of bonds payable, Dec 31, 2017
Book value, Jan 1, 207 $ 14,56,000.00
Amorization $          7,000.00
Book value $ 14,49,000.00
Cash payment (560000 * 10%) $       56,000.00
Amorization of premium (11200*40%) $        -2,800.00
Intercompany interest expense $       53,200.00
Book value of 40% bonds payable $    5,79,600.00
Debit Credit
Bonds payable $5,60,000.00
Premium on bonds payable $    19,600.00
Interest income $    59,500.00
Investment in bonds $5,35,500.00
Interest expense $    53,200.00
Gain on retirement $    50,400.00
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ekkarill92 answered 1 year ago
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