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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 $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 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%)

c. Prepare all worksheet consolidation entries needed to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements for 20X4. (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

GIVEN DATA:

Wood Corporation owns 70 percent of Carter Company’s voting shares.

Carter sold bonds = $652,500 at 98.

Wood purchased = $435,000

Annual interest rate = 8 %

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?

b.Prepare the journal entries Wood recorded during 20X3 with regard to its investment in Carter bonds ect...

c.Prepare all worksheet consolidation entries needed to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements for 20X4ect..

SOLUTION:

a:- In the solidified money related articulations, premium sum would be recorded as paid to the non partners. Since on Jan 1 20X3, the bonds worth $435000 are obtained by Wood company at 98 consequently,

Bonds subscribe by Non affiliates = 652500 - 435000

= 217500$

therefore bonds subscribe by non affiliates is 217,500$

Loan fee given in the inquiry is thought to be 8% p.a intensified every year.

Since the intrigue is given semi-every year in this manner we need to discover the ostensible rate of enthusiasm by the accompanying formulae:

EFFECTIVE RATE = (1+ NOMINAL RATE / M)M -1

0.08 = (1 + NR /2 )2 - 1

1.08 = (1 + NR / 2 )2

N R = 7.486%

(or)

7.85% approx.

Thus , Interest to be recoreded in Consolidated Financial statements:

= (217500 * 7.85 / 2 * 100) *2

= (1707375 /2 *100) *2

= (853687.5 *100) *2

= 85368750 *2

= 170737500

(or)

17,073$(nearest dollar )

b :- JOURNAL ENTRY IN WOOD CORPORATIONS:

c :- JOURNAL ENTRY REQUIRED TO REMOVE THE EFFECT OF INTER CORPORATE BOND:

ekkarill92 answered 1 year ago
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