E 7-13 Computations and entries (constructive gain on purchase of parent bonds)

Pop Corporation acquired an 80 percent interest in Son Corporation at book value equal to fair value on January 1, 2017, at which time Son’s capital stock and retained earnings were $200,000 and $80,000, respectively. On January 2, 2018, Son purchased $100,000 par of Pop’s 8 percent, $200,000 par bonds for $97,600 three years before maturity. Interest payment dates are January 1 and July 1. During 2018, Son reports interest income of $8,800 from the bonds, and Pop reports interest expense of $16,000.

ADDITIONAL INFORMATION 1. Pop’s separate income for 2018 is $400,000.
2. Son’s net income for 2018 is $100,000.
3. Pop accounts for its investment using the equity method.
4. Straight-line amortization is applicable.
REQuIRED 1. Determine the gain or loss on the bonds.
2. Prepare the journal entries for Son to account for its bond investment during 2018.
3. Prepare the journal entries for Pop to account for its bonds payable during 2018.
4. Prepare the journal entry for Pop to account for its 80 percent investment in Son for 2018.
5. Calculate noncontrolling interest share and consolidated net income for 2018.