Wood Corporation owns 70 percent of Carter Company’s voting shares. On January 1, 20X3, Carter sold...

Wood Corporation owns 70 percent of Carter Company’s voting shares. On January 1, 20X3, Carter sold bonds with a par value of $615,000 at 98. Wood purchased $410,000 par value of the bonds; the remainder was sold to nonaffiliates. The bonds mature in five years and pay an annual interest rate of 8 percent. Interest is paid semiannually on January 1 and July 1.

Required:

a. What amount of interest expense should be reported in the 20X4 consolidated income statement? (Do not round your intermediate calculations. Round your final answers to nearest whole dollar.)

b. Prepare the journal entries Wood recorded during 20X4 with regard to its investment in Carter bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your market rate of interest to 3 decimals. For example, .0547523 should be rounded to 5.475%)

Solutions

Expert Solution

a. Amount of interest expense that should be reported in the 20X4 consolidated income statement will be :

i. the July 1st 20X4 cash interest payment to non-affiliates (205000*8%/2= 8200) &

ii..Dec 31,20X4 accrual of interest to non-affiliates (205000*8%/2= 8200) , totalling

8200+8200=16400

ANSWER: 2
Journal entries in the
	Books Of Wood Corporation
Date	Account Titles	Debit	Credit
Dec 31, 20X3	Interest receivable	15580
	Discount on bonds	820
	Interest Income(410000*8%/2)		16400
	(Accrual of Semi-annual Carter-bond interest income)

Jan 1, 20X4	Cash	15580
	Interest receivable		15580
	(Receipt of accrued income)

July,1 20X4	Cash	15580
	Discount on bonds	820
	Interest Income(410000*8%/2)		16400
	(Semi-annual interest income on Carter bonds)

Dec 31, 20X4	Interest receivable	15580
	Discount on bonds	820
	Interest Income(410000*8%/2)		16400
	(Accrual of Semi-annual Carter-bond interest income




NOTE: As no market rate was provided in the question,straight-line amortisation of bond interest--ie. Equal amounts over the 10 interest payment-periods has been carried out.

ekkarill92 answered 8 months ago

Next > < Previous

Related Solutions

Wood Corporation owns 70 percent of Carter Company’s voting shares. On January 1, 20X3, Carter sold...

Wood Corporation owns 70 percent of Carter Company’s voting shares. On January 1, 20X3, Carter sold bonds with a par value of $645,000 at 98. Wood purchased $430,000 par value of the bonds; the remainder was sold to nonaffiliates. The bonds mature in five years and pay an annual interest rate of 8 percent. Interest is paid semiannually on January 1 and July 1. a. What amount of interest expense should be reported in the 20X4 consolidated income statement? (Do...

Wood Corporation owns 70 percent of Carter Company’s voting shares. On January 1, 20X3, Carter sold...

Wood Corporation owns 70 percent of Carter Company’s voting shares. On January 1, 20X3, Carter sold bonds with a par value of $645,000 at 98. Wood purchased $430,000 par value of the bonds; the remainder was sold to nonaffiliates. The bonds mature in five years and pay an annual interest rate of 8 percent. Interest is paid semiannually on January 1 and July 1. Required: a. What amount of interest expense should be reported in the 20X4 consolidated income statement?...

Wood Corporation owns 70 percent of Carter Company’s voting shares. On January 1, 20X3, Carter sold...

Wood Corporation owns 70 percent of Carter Company’s voting shares. On January 1, 20X3, Carter sold bonds with a par value of $652,500 at 98. Wood purchased $435,000 par value of the bonds; the remainder was sold to nonaffiliates. The bonds mature in five years and pay an annual interest rate of 8 percent. Interest is paid semiannually on January 1 and July 1. a. What amount of interest expense should be reported in the 20X4 consolidated income statement? (Do...

Wood Corporation owns 70 percent of Carter Company’s voting shares. On January 1, 20X3, Carter sold...

Pan Corporation owns 65 percent of Sauce Corporation's voting shares. On January 1, 20X3, Pan Corporation...

Pan Corporation owns 65 percent of Sauce Corporation's voting shares. On January 1, 20X3, Pan Corporation sold $300,000 par value 7 percent bonds to Sauce when the market interest rate was 4 percent. The bonds mature in 15 years and pay interest semiannually on June 30 and December 31. Based on the information given above, in the preparation of the 20X3 consolidated financial statements, premium on bonds payable will be: credited for $95,766 in the consolidation entries. credited for $100,784...

Planner Corporation owns 60 percent of Schedule Company’s voting shares. During 20X3, Planner produced 25,000 computer...

Planner Corporation owns 60 percent of Schedule Company’s voting shares. During 20X3, Planner produced 25,000 computer desks at a cost of $82 each and sold 10,000 of them to Schedule for $94 each. Schedule sold 7,000 of the desks to unaffiliated companies for $130 each prior to December 31, 20X3, and sold the remainder in early 20X4 for $140 each. Both companies use perpetual inventory systems. Required: a. What amounts of cost of goods sold did Planner and Schedule record...

Planner Corporation owns 60 percent of Schedule Company’s voting shares. During 20X3, Planner produced 27,000 computer...

Planner Corporation owns 60 percent of Schedule Company’s voting shares. During 20X3, Planner produced 27,000 computer desks at a cost of $96 each and sold 12,000 of them to Schedule for $108 each. Schedule sold 8,000 of the desks to unaffiliated companies for $136 each prior to December 31, 20X3, and sold the remainder in early 20X4 for $146 each. Both companies use perpetual inventory systems. Required: a. What amounts of cost of goods sold did Planner and Schedule record...

Karlow Corporation owns 60 percent of Draw Company’s voting shares. During 20X3, Karlow produced 27,000 computer...

Karlow Corporation owns 60 percent of Draw Company’s voting shares. During 20X3, Karlow produced 27,000 computer desks at a cost of $86 each and sold 12,000 of them to Draw for $98 each. Draw sold 8,000 of the desks to unaffiliated companies for $142 each prior to December 31, 20X3, and sold the remainder in early 20X4 for $152 each. Both companies use perpetual inventory systems. a. What amounts of cost of goods sold did Karlow and Draw record in...

Light Corporation owns 80 percent of Sound Company's voting shares. On January 1, 20X7, Sound sold...

Light Corporation owns 80 percent of Sound Company's voting shares. On January 1, 20X7, Sound sold bonds with a par value of $300,000 when the market rate was 7 percent. Light purchased two thirds of the bonds; the remainder was sold to nonaffiliates. The bonds mature in ten years and pay an annual interest rate of 6 percent. Interest is paid semiannually on June 30 and Dec 31. 1. Based on the information given above, what amount of interest expense...

Light Corporation owns 80 percent of Sound Company's voting shares. On January 1, 20X7, Sound sold...

Light Corporation owns 80 percent of Sound Company's voting shares. On January 1, 20X7, Sound sold bonds with a par value of $300,000 when the market rate was 7 percent. Light purchased two thirds of the bonds; the remainder was sold to nonaffiliates. The bonds mature in ten years and pay an annual interest rate of 6 percent. Interest is paid semiannually on June 30 and Dec 31. Based on the information given above, what amount of interest expense should...

Subjects