Question

E8–1A Bond Sale from Parent to Subsidiary (Straight-Line Method)

LO 8–2

Assume the same facts as in E8-1 and prepare entries using straight-line amortization of bond discount or premium.

Pretzel Corporation owns 60 percent of Stick Corporation’s voting shares. On January 1, 20X2, Pretzel Corporation sold $150,000 par value, 6 percent first mortgage bonds to Stick for $156,000. The bonds mature in 10 years and pay interest semiannually on January 1 and July 1.

Required

1. Prepare the journal entries for 20X2 for Stick related to its ownership of Pretzel’s bonds.

2. Prepare the journal entries for 20X2 for Pretzel related to the bonds.

3. Prepare the worksheet consolidation entries needed on December 31, 20X2, to remove the effects of the intercorporate ownership of bonds.

prepare entries using straight-line amortization of bond discount or premium.

Answer 1

Date	General Journal	Debit	Credit
Jan 1, 20X2	Investment in Pretzel Corporation Bonds	156,000
	Cash		156,000
July 1, 20X2	Cash	4,500
	Interest Income		4,200
	Investment in Pretzel Corporation Bonds		300
Dec 31, 20X2	Interest Receivable	4,500
	Interest Income		4,200
	Investment in Pretzel Corporation Bonds		300
Date	General Journal	Debit	Credit
Jan 1, 20X2	Cash	156,000
	Bonds Premium		6,000
	Bonds Payable		150,000
July 1, 20X2	Interest Expense	4,200
	Bonds Premium (6,000/10 x 1/2)	300
	Cash (150,000 x 6% x 1/2)		4,500
Dec 31, 20X2	Interest Expense	4,200
	Bonds Premium	300
	Interest Payable		4,500