Question

During the year, Sabatoge, a 70% owned subsidiary of Pure, borrowed $250,000 from Pure on August 1, 2019. The note matures in one year and carries an interest rate of 8%. Prepare the entries that would have been made on the separate books of each company in 2019 and the elimination entries (in journal form) on the December 31, 2019 year end consolidation worksheet.

Answer 1

Part 1

	Pure Company (Parent company)
Situation	Account title	Debit	Credit
Aug 1, 2019	Notes receivable	250,000
	Cash		250,000
	To lend the money to subsidiary company.
Dec 31, 2019	Interest receivable (250000*8%*5/12)	8,333
	Interest revenue		8,333
	To record accrued interest expense.[Aug to Dec = 5 months]

	Sabatoge Company (Subsidiary company)
Situation	Account title	Debit	Credit
Aug 1, 2019	Cash	250,000
	Notes payable		250,000
	To record borrowed cash through notes payable.
Dec 31, 2019	Interest expense	8,333
	Interest payable		8,333
	To record accrued interest expense.

Part 2

	Elimination entries (consolidation worksheet)
Situation	Account title	Debit	Credit
Dec 31, 2019	Notes payable	250,000
	Notes receivable		250,000
	To eliminate the notes.
Dec 31, 2019	Interest revenue	8,333
	Interest payable	8,333
	Interest expense		8,333
	Interest receivable		8,333
	To eliminate the interest.