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

Free

80.2K

Verified Solution

Question

Accounting

Online Enterprises owns 95 percent of Downlink Corporation. OnJanuary 1, 20X1, Downlink issued $210,000 of five-year bonds at115. Annual interest of 12 percent is paid semiannually on January1 and July 1. Online purchased $110,000 of the bonds on August 31,20X3, at par value. The following balances are taken from theseparate 20X3 financial statements of the two companies:
Note: Assume using straight-line amortization of bond discountor premium.
Online Enterprises Downlink Corporation
  Investment inDownlink Corporation Bonds $ 115,700
  Interest Income 4,550
  InterestReceivable 6,600
  Bonds Payable $ 210,000
  Bond Premium 14,100
  InterestExpense 18,900
  InterestPayable 13,200
Required:
a.
Compute the amount of interest expense that should be reportedin the consolidated income statement for 20X3. (Do notround intermediate calculations. Round your final answer to nearestwhole dollar.)
b.
Compute the gain or loss on constructive bond retirement thatshould be reported in the 20X3 consolidated income statement.(Do not round intermediate calculations. Round your finalanswer to nearest whole dollar.)
c. Prepare the consolidation worksheet consolidation entry orentries as of December 31, 20X3, to remove the effects of theintercorporate bond ownership. (If no entry is required fora transaction/event, select "No journal entry required" in thefirst account field. Do not round intermediate calculations. Roundyour final answer to nearest whole dollar.)
-Record the entry to eliminate the effects of the intercompanyownership in bonds for 20X3.
-Record the entry to eliminate the intercompany interestreceivables/payables for 20X3.

Answer & Explanation Solved by verified expert

3.7 Ratings (609 Votes)

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

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Online Enterprises owns 95 percent of Downlink Corporation. OnJanuary 1, 20X1, Downlink issued $210,000 of five-year bonds at115. Annual interest of 12 percent is paid semiannually on January1 and July 1. Online purchased $110,000 of the bonds on August 31,20X3, at par value. The following balances are taken from theseparate 20X3 financial statements of the two companies:Note: Assume using straight-line amortization of bond discountor premium.Online EnterprisesDownlink Corporation Investment inDownlink Corporation Bonds$115,700 Interest Income4,550 InterestReceivable6,600 Bonds Payable$210,000 Bond Premium14,100 InterestExpense18,900 InterestPayable13,200Required:a.Compute the amount of interest expense that should be reportedin the consolidated income statement for 20X3. (Do notround intermediate calculations. Round your final answer to nearestwhole dollar.)b.Compute the gain or loss on constructive bond retirement thatshould be reported in the 20X3 consolidated income statement.(Do not round intermediate calculations. Round your finalanswer to nearest whole dollar.)c. Prepare the consolidation worksheet consolidation entry orentries as of December 31, 20X3, to remove the effects of theintercorporate bond ownership. (If no entry is required fora transaction/event, select "No journal entry required" in thefirst account field. Do not round intermediate calculations. Roundyour final answer to nearest whole dollar.)-Record the entry to eliminate the effects of the intercompanyownership in bonds for 20X3.-Record the entry to eliminate the intercompany interestreceivables/payables for 20X3.