Consolidation is a process in which financial statements of a subsidiary company is merged with financial statements of the parent company. In this process, effect of intercompany transactions are eliminated. To prepare: Journal entries required to eliminate and adjust bonds purchased by parent company.

Question

Want to see the full answer?

Answer 1

Question

Chapter 5, Problem 5.1.1P

To determine

Introduction: Consolidation is a process in which financial statements of a subsidiary company is merged with financial statements of the parent company. In this process, effect of intercompany transactions are eliminated.

To prepare: Journal entries required to eliminate and adjust bonds purchased by parent company.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2018. The market interest rate (yield) was 8% for bonds of similar risk and maturity. Tanner-UNF paid $200 million for the bonds. The company will receive interest semiannually on June 30 and December 31. Company management has classified the bonds as available-for-sale investments. As a result of changing market conditions, the fair value of the bonds at December 31, 2018, was $210 million. 1. Prepare any journal entry necessary for Tanner-UNF to report its investment in the December 31, 2018, balance sheet. 2. Suppose Moody's bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sell the investment on January 2, 2019, for $190 million. Prepare the journal entries necessary to record the sale, including updating the fair-value adjustment, recording any reclassification adjustment, and recording the sale PLEASE SHOW WORK

Highlight, Inc., owns all outstanding stock of Kiort Corporation. The two companies report the following balances for the year ending December 31, 2017:On January 1, 2017, Highlight acquired on the open market bonds for $108,000 originally issued by Kiort. This investment had an effective rate of 8 percent. The bonds had a face value of $100,000 and a cash interest rate of 9 percent. At the date of acquisition, these bonds were shown as liabilities by Kiort with a carrying amount of $84,000 (based on an effective rate of 11 percent). Determine the balances that should appear on a consolidated income statement for 2017.

Since its 100% acquisition of Dancer Corporation stock on December 31, 2012, Jones Corporation has maintained its investment under the equity method. However, due to Dancer’s earning potential, the price included a $40,000 payment for goodwill. At the time of the purchase, the fair value of Dancer’s assets equaled their book value. On January 2, 2014, Dancer Corporation issued 10-year, 7% bonds at a face value of $50,000. The bonds pay interest each December 31. On January 2, 2016, Jones Corporation purchased all of Dancer Corporation’s outstanding bonds for $48,000. The discount is amortized on a straight-line basis. They have been included in Jones’s long-term investment in bonds account. attached are the trial balances of both companies on December 31, 2016.1. Prepare the worksheet entries needed to eliminate the intercompany debt on December 31, 2016. 2. Prepare a consolidated income statement for the year ended December 31, 2016. Note: No worksheet is required.