Question

Several years ago Brant, Inc., sold $960,000 in bonds to the public. Annual cash interest of 7 percent ($67,200) was to be paid on this debt. The bonds were issued at a discount to yield 10 percent. At the beginning of 2016, Zack Corporation (a wholly owned subsidiary of Brant) purchased $160,000 of these bonds on the open market for $181,000, a price based on an effective interest rate of 5 percent. The bond liability had a carrying amount on that date of $840,000. Assume Brant uses the equity method to account internally for its investment in Zack. a. & b. What consolidation entry would be required for these bonds on December 31, 2016 and December 31, 2018? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate answers to nearest whole number.)

Prepare Entry B to eliminate the intra-entity debt holdings and to recognize the loss on retirement.

Prepare Entry *B to eliminate the intra-entity bond holdings and to adjust the investment in Zack for the unrecognized loss on retirement.

Answer 1