Online Enterprises owns 95 percent of Downlink Corporation. On January 1, 20X1, Downlink issued $210,000 of...

Online Enterprises owns 95 percent of Downlink Corporation. On January 1, 20X1, Downlink issued $210,000 of five-year bonds at 115. Annual interest of 12 percent is paid semiannually on January 1 and July 1. Online purchased $110,000 of the bonds on August 31, 20X3, at par value. The following balances are taken from the separate 20X3 financial statements of the two companies:

Note: Assume using straight-line amortization of bond discount or premium.

	Online Enterprises		Downlink Corporation
Investment in Downlink Corporation Bonds	$	115,700
Interest Income		4,550
Interest Receivable		6,600
Bonds Payable			$	210,000
Bond Premium				14,100
Interest Expense				18,900
Interest Payable				13,200

Required:

Compute the amount of interest expense that should be reported in the consolidated income statement for 20X3. (Do not round intermediate calculations. Round your final answer to nearest whole dollar.)

Compute the gain or loss on constructive bond retirement that should be reported in the 20X3 consolidated income statement. (Do not round intermediate calculations. Round your final answer to nearest whole dollar.)

c. Prepare the consolidation worksheet consolidation entry or entries as of December 31, 20X3, to remove the effects of the intercorporate bond ownership. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Round your final answer to nearest whole dollar.)

-Record the entry to eliminate the effects of the intercompany ownership in bonds for 20X3.

-Record the entry to eliminate the intercompany interest receivables/payables for 20X3.

Solutions

Expert Solution

SOLUTION

Particulars	Amount ($)
Par value of bonds outstanding	210,000
Annual interest rate	12%
Interest Payment	25,200
Amortization of bond premium ($210,000 * 0.15) / 5 years	(6,300)
Interest charge for full year	18,900
Less: Interest on Bond Purchased by Online Enterprises
($18,900 * 1/2) * (4 months/12 months)	(3,150)
Interest expense included in consolidated income statement	15,750

Particulars	Amount ($)
Sale price of bonds, January 1	126,500
Amortization of premium ($16,500 / 5yrs) * 2 2/3 years)	(8,800)
Book value at time of purchase	117,700
Purchase price	(110,000)
Gain on bond retirement	7,700

S.No.	Accounts titles and Explanation	Debit ($)	Credit ($)
1.	Bonds Payable	110,000
	Premium on Bonds Payables	6,300
	Interest Income	4,550
	Investment in Downlink Corporation		110,000
	Interest Expense		3,150
	Gain on Bond Retirement		7,700

2.	Interest Payable	6,300
	Interest Receivable		6,300

ekkarill92 answered 9 months ago

Next > < Previous

Related Solutions

Pepper Enterprises owns 95 percent of Salt Corporation. On January 1, 20X1, Salt issued $200,000 of...

Pepper Enterprises owns 95 percent of Salt Corporation. On January 1, 20X1, Salt issued $200,000 of five-year bonds at 115. Annual interest of 12 percent is paid semiannually on January 1 and July 1. Pepper purchased $100,000 of the bonds on July 1, 20X3, at par value. The following balances are taken from the separate 20X3 financial statements of the two companies: Pepper Enterprises Salt Corporation Investment in Salt Corporation Bonds $ 100,000 Interest Income 6,000 Interest Receivable 6,000 Bonds...

Machinery that cost $210,000 on 1 January 20X1 was sold for $85,500 on 30 June 20X6....

Machinery that cost $210,000 on 1 January 20X1 was sold for $85,500 on 30 June 20X6. It was being depreciated over a 10-year life by the straight-line method, assuming its residual value would be $21,000. A building that cost $1,880,000, residual value $118,000, was being depreciated over 20 years by the straight-line method. At the beginning of 20X6, when the structure was 8 years old, an additional wing component was constructed at a cost of $635,000. The estimated life of...

Able Company issued $630,000 of 8 percent first mortgage bonds on January 1, 20X1, at 104....

Able Company issued $630,000 of 8 percent first mortgage bonds on January 1, 20X1, at 104. The bonds mature in 20 years and pay interest semiannually on January 1 and July 1. Prime Corporation purchased $420,000 of Able’s bonds from the original purchaser on December 31, 20X5, for $416,000. Prime owns 70 percent of Able’s voting common stock. Required: a. Prepare the worksheet consolidation entry or entries needed to remove the effects of the intercorporate bond ownership in preparing consolidated...

Suspect Company issued $1,020,000 of 9 percent first mortgage bonds on January 1, 20X1, at 104....

Suspect Company issued $1,020,000 of 9 percent first mortgage bonds on January 1, 20X1, at 104. The bonds mature in 20 years and pay interest semiannually on January 1 and July 1. Prime Corporation purchased $680,000 of Suspect’s bonds from the original purchaser on January 1, 20X5, for $675,000. Prime owns 60 percent of Suspect’s voting common stock. Required: a. Prepare the worksheet consolidation entry or entries needed to remove the effects of the intercorporate bond ownership in preparing consolidated...

Austin, Inc., acquired 10 percent of McKenzie Corporation on January 1, 2014, for $210,000 although McKenzie’s...

Austin, Inc., acquired 10 percent of McKenzie Corporation on January 1, 2014, for $210,000 although McKenzie’s book value on that date was $1,700,000. McKenzie held land that was undervalued by $100,000 on its accounting records. During 2014, McKenzie earned a net income of $240,000 while declaring and paying cash dividends of $90,000. On January 1, 2015, Austin purchased an additional 30 percent of McKenzie for $600,000. McKenzie’s land is still undervalued on that date, but then by $120,000. Any additional...

Pirate Company purchased 60 percent ownership of Ship Corporation on January 1, 20X1, for $82,800. On...

Pirate Company purchased 60 percent ownership of Ship Corporation on January 1, 20X1, for $82,800. On that date, the noncontrolling interest had a fair value of $55,200 and Ship reported common stock outstanding of $100,000 and retained earnings of $20,000. The full amount of the differential is assigned to land to be used as a future building site. Pirate uses the fully adjusted equity method in accounting for its ownership of Ship. On December 31, 20X2, the trial balances of...

Pitcher Corporation purchased 60 percent of Softball Corporation’s voting common stock on January 1, 20X1. On...

Pitcher Corporation purchased 60 percent of Softball Corporation’s voting common stock on January 1, 20X1. On January 1, 20X5, Pitcher received $258,000 from Softball for a truck Pitcher had purchased on January 1, 20X2, for $328,000. The truck is expected to have a 10-year useful life and no salvage value. Both companies depreciate trucks on a straight-line basis. Required: a. Prepare the worksheet consolidation entry or entries needed at December 31, 20X5, to remove the effects of the intercompany sale....

Public Corporation acquired 90 percent of Station Company’s voting common stock on January 1, 20X1, for...

Public Corporation acquired 90 percent of Station Company’s voting common stock on January 1, 20X1, for $502,200. At the time of the combination, Station reported common stock outstanding of $129,000 and retained earnings of $384,000, and the fair value of the noncontrolling interest was $55,800. The book value of Station’s net assets approximated market value except for patents that had a market value of $45,000 more than their book value. The patents had a remaining economic life of five years...

On January 1, 20X1, Pesto Corporation purchased 90 percent of Sauce Corporation's common stock at underlying...

On January 1, 20X1, Pesto Corporation purchased 90 percent of Sauce Corporation's common stock at underlying book value. At that date, the fair value of the noncontrolling interest was equal to 10 percent of Sauce Corporation's book value. Pesto uses the equity method in accounting for its investment in Sauce. The stockholders' equity section of Sauce at January 1, 20X5, contained the following balances: Common Stock ($5 par) $ 400,000 Additional Paid-in Capital 200,000 Retained Earnings 790,000 Accumulated Other Comprehensive...

Frazer Corporation purchased 60 percent of Minnow Corporation’s voting common stock on January 1, 20X1. On...

Frazer Corporation purchased 60 percent of Minnow Corporation’s voting common stock on January 1, 20X1. On January 1, 20X5, Frazer received $237,000 from Minnow for a truck Frazer had purchased on January 1, 20X2, for $287,000. The truck is expected to have a 10-year useful life and no salvage value. Both companies depreciate trucks on a straight-line basis. I come up with Gain on Sale 36100 Truck 50,00 Accum Dep 86,100 But I cannot calculate out the Adjusted Depreciation. I...

Subjects