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Big Co. owns 80% of the stock of Little Co. On 1/1/23 Little issues $100,000 of...

Big Co. owns 80% of the stock of Little Co. On 1/1/23 Little issues $100,000 of 10%, 10 year bonds directly to Big for $103,000.  Big and Little both use straight-line amortization.

Prepare elimination entries RELATING TO THIS INTERCOMPANY TRANSACTION for 2023 and 2024

Solutions

Expert Solution

Part 1

Interest payment (100000*10%)            10,000
Add: premium amortization                  300
Interest expense            10,300
Investment in Bond, on beginning          103,000
Less: premium amortization ((103000-100000)/10)                  300
Investment in bond, on Dec 31, 2023          102,700
Date General journal Debit Credit
Dec 31, 2023 Bond payable          100,000
Premium on bond payable              2,700
interest income            10,300
Interest expense              10,300
Investment in Bond            102,700
To record elimination entry.

Part 2

Investment in bond, on Dec 31, 2023          102,700
Less: premium amortization ((103000-100000)/10)                  300
Investment in bond, on Dec 31, 2024          102,400
Date General journal Debit Credit
Dec 31, 2024 Bond payable          100,000
Premium on bond payable              2,400
interest income            10,300
Interest expense              10,300
Investment in Bond            102,400
To record elimination entry.

ekkarill92 answered 1 year ago
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