Question

Cairns owns 80 percent of the voting stock of Hamilton, Inc. The parent’s interest was acquired several years ago on the date that the subsidiary was formed. Consequently, no goodwill or other allocation was recorded in connection with the acquisition. Cairns uses the equity method in its internal records to account for its investment in Hamilton.

On January 1, 2011, Hamilton sold $1,500,000 in 10-year bonds to the public at 105. The bonds had a cash interest rate of 8 percent payable every December 31. Cairns acquired 45 percent of these bonds at 96 percent of face value on January 1, 2013. Both companies utilize the straight-line method of amortization.

Prepare the consolidation worksheet entries to recognize the effects of the intra-entity bonds at each of the following dates. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Prepare entry B -December 31,2013 Prepare entry *B - December 31,2014 Prepare entry *B - December 31,2015 List of accounts are No entry required Amortization expense Bonds Payable Discount on Bonds payable Gain on retirementof bonds Goodwill Interest expense Interest income Investment in bonds Investment in Hamilton Loss on retirement of bonds Premium on bonds payable

Answer 1

Book value of bonds payable on January 1,2013
Book Value as on January 1, 2011 (1500000*1.05)	1575000
Less Amorization in 2011 & 2012	-15000
Book value of bonds payable on January 1,2013	1560000
Book Value of 45% bonds Payable (intra entity portion)Jan. 1 ,2013	702000
Gain on retirement of bonds as on Jan.1,2013
Book Value of Liability	702000
Purchase price (1500000*45%*96%)	648000
Gain on retirement of bonds as on Jan.1,2013	54000
Book value of bonds payable on January 1,2013	1560000
Less Amorization in 2013	-7500
Book value of bonds payable on Dec.31,2013	1552500
Book Value of 45% bonds Payable (intra entity portion)Jan. 1 ,2013	698625
Book Value of investment as on Dec. 31,2013
Book Value of investment as onJan. 1,2013	675000
Less Amorization in 2013	-3375
Book Value of investment as on Dec. 31,2013	671625
Intra entiy interest balance for 2013'
Interest Expense;
Cash payment	54000
Less Amorization in 2013	-3375
Intra entiy interest balance for 2013'	50625
Interest Income;
Cash Collection	54000
Amortisaton of Discount	7500
Intra entiyInterest Income;for 2013'	61500
Bonds Payable	675000
premiumon Bonds payable	16125
Interest Income	61500
Investment in Bonds		671625
Interest Expense		50625
Gain on retirement of Bonds		54000