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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 1 year ago
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