Purse Corporation owns 70 percent of Scarf Company's voting shares. On January 1, 20×3, Scarf sold bonds with a par value of $667,500 at 98. Purse purchased $445,000 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? b. Prepare the journal entries Purse recorded during 20X4 with regard to its investment in Scarf bonds. c. Prepare all worksheet consolidation entries needed to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements for 20X4.

Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter9: Long-term Liabilities
Section: Chapter Questions
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Purse Corporation owns 70 percent of Scarf Company's voting shares. On January 1, 20×3, Scarf sold bonds with a par
value of $667,500 at 98. Purse purchased $445,000 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?
b. Prepare the journal entries Purse recorded during 20X4 with regard to its investment in Scarf bonds.
c. Prepare all worksheet consolidation entries needed to remove the effects of the intercorporate bond ownership in
preparing consolidated financial statements for 20X4.
Transcribed Image Text:Purse Corporation owns 70 percent of Scarf Company's voting shares. On January 1, 20×3, Scarf sold bonds with a par value of $667,500 at 98. Purse purchased $445,000 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? b. Prepare the journal entries Purse recorded during 20X4 with regard to its investment in Scarf bonds. c. Prepare all worksheet consolidation entries needed to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements for 20X4.
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