Question

In 2000, The James Bond Company purchased all of the stock of the 007 Company at book value. James Bond accounts for this investment using the initial value method and 007 Company does not pay any dividends.

On 1/1/2015 The James Bond Company issued (sold) 400; 10% $1000 bonds for $440,000. These 20 year bonds pay interest each July 1 and January 1. James Bond Company uses straight line amortization for bond interest

On 1/1/2018 The 007 Company purchased all of these bonds in the open market for $417,000. 007 Company uses straight line amortization for investment interest revenue

REQUIRED:

A) Make the journal entry James Bond Company makes when it sells the bonds in 2015

B) Make the journal entry James Bond makes on July 1 2015 with the first interest payment

C) Make the journal entry 007 Company makes when it buys the bonds in 2018

D) Make the journal entry 007 Company makes on July 1, 2018 when it receives its first interest payment

E) Make the worksheet entry needed in 2018 connected with these bonds

F) In 2018 James Bond reported unconsolidated income of $600,000 and 007 Company reported income of $80,000. What is consolidated income?

G) Make the worksheet entry needed in 2019 connected with these bonds h) In 2019 James Bond reported unsolidated income of $600,000 and 007 Company reported income of $80,000. What is consolidated income?

Answer 1

This is a case of investment in Bonds and inter company cancellation of transaction during consolidation of Holding and subsidiaries accounts.

In both case issue and Purchses of Bonds are on premium hence the premium should be W/off over the period of life of bonds.