Question

Problem 6-28 (LO 6-3) Cairns owns 70 percent of the voting stock of Hamilton, Inc. The parent's interest was acquired several years ago on the date that the subsidiary was formed. Consequently, no goodwill or other allocation was recorded in connection with the acquisition. Cairns uses the equity method in its internal records to account for its investment in Hamilton On January 1, 2014, Hamilton sold $2,500,000 in 10-year bonds to the public at 105. The bonds had a cash interest rate of 10 percent payable every December 31. Cairns acquired 30 percent of these bonds at 96 percent of face value on January 1, 2016. Both companies utilize the straight-line method of amortization Prepare the consolidation worksheet entries to recognize the effects of the intra-entity bonds at each of the following dates. If no entry is required for a transaction/event, select "No journal entry required in the first account field.) a. December 31, 2016 b. December 31, 2017 c. December 31, 2018

Answer 1

D+باه working Note: I computation of Annual amortization Bonds Payable - - $25,00,000 x 30% $7.50,000 Purchase Price = $7.5Q0oo x 96% - $7,20,000 Annual amortization $7.50,000 E) $7,20,000 (10-2) 30,000 - $3,750 zentra entity exlense - Cash Payment (-) Amortization 30,000 $3.750 96.250 6 entra entity oncomo calh collection - 30,000 Amortization = 3.750 33750

4 Interest Payable = $7,50,000 X 4% = 30.000 o onterest receivable - $750,000 X/ - 30.000 Preparation of consolidated work sheet entries Debit Credit Date Account title and "explanation 31-Dec 2016 Bonds Payable $7,50,000 33,750 Interest Income Premium onbonds (blf) 18,750 Payable Gainon retirement of bonds Interest expenses Investment in bords (7,50.000-3,750 [ To recand elimination entry for recand purposey 30,000 26.250 7,46,250

Dec-31 2017 Bonds Payable $7,50,000 Interest Income 33.750 Premiumon bonds 15,000 Payable (Bito arso) Interest expenses 26.250 Investment in 7,46,250 bondy Investment in 4,250 Hamilton (30,000-3,750) [To record climation entry for recond purpose Dec-31 2018 Bonds Payable $4,50.000 Interest Income 33,750 Premium on bonds Payable 11.250 (15,000 -3.750) Interest expenses 26,250 Investment in bonds 746,950 investment in Hamilton (26.250-3,750) to recond elimination entry for second fur pose] 92.500