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Pretzel Corporation owns 60 percent of Stick Corporation’s voting shares. On January 1, 20X2, Pretzel Corporation...

Pretzel Corporation owns 60 percent of Stick Corporation’s voting shares. On January 1, 20X2, Pretzel Corporation sold $180,000 par value, 6 percent first mortgage bonds to Stick for $185,000. The bonds mature in 10 years and pay interest semiannually on January 1 and July 1.

a. Prepare the journal entries for 20X2 for Stick related to its ownership of Pretzel’s bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round your intermediate calculations. Round your final answers to nearest whole dollar.)

  • Record the investment in the bonds of Pretzel Corporation.

  • Record the semiannual interest income received from the bonds of Pretzel Corporation.

  • Record the semiannual interest receivable from the bonds of Pretzel Corporation.

b. Prepare the journal entries for 20X2 for Pretzel related to the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round your intermediate calculations. Round your final answers to nearest whole dollar.)

Record the investment in Pretzel Corporation bonds by Stick Corporation.

  • Record the payment of interest and the amortization of the bond premium.

  • Record the interest payable and the amortization of bond premium.

c. Prepare the worksheet consolidation entries needed on December 31, 20X2, to remove the effects of the intercorporate ownership of bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round your intermediate calculations. Round your final answers to nearest whole dollar.)

  • Record the entry to eliminate the intercompany bond holdings.

  • Record the entry to eliminate intercompany receivable/payable.

Solutions

Expert Solution

a.) Journal entries in books of Stick
For Investment Debit Credit
(i) Investment in bonds of Pretzel Corporation        1,85,000
To Bank        1,85,000
Receipt of semi annual interest
(ii) Bank              5,400
To Interest income             5,150
To Investment in Bond 250
Receivable of semi annual interest
(iii) Interest Receivable              5,400
To Interest income             5,150
To Investment in Bond 250
b.) Journal entries in books of Pretzel
For Issuance of bond Debit Credit
(i) Bank        1,85,000
To Bond Payable        1,80,000
To Premium on bond             5,000
Payment of semi annual interest & amortization of bond premium
(ii) Interest expense              5,150
Premium on bond                 250
To Bank             5,400
(180000 X 6% X 1/2 )
Interest payable of semi annual interest & amortization of bond premium
(iii) Interest expense              5,150
Premium on bond                 250
To Interest payable             5,400
(180000 X 6% X 1/2 )
c.) Entry for elimination of Intercompany bond holding:-
Debit Credit
Bond Payable        1,80,000
Premium on bond              4,000
To Investment in bonds of Pretzel Corporation        1,84,000
Interest payable              5,400
To Interest receivable             5,400

ekkarill92 answered 1 year ago
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