1. On January 1, 2007, Gild Company acquired 60 percent of the outstanding common stock of Leeds Company at the book value of the shares acquired. On that date, the fair value of non-controlling interest was equal to 40 percent of book value of Leeds. At the time of purchase, Leeds had common stock of $1,000,000 outstanding and retained earnings of $800,000. On January 1, 2008, Gild purchased 100% of Leeds 's bonds outstanding. This debt was originally issued on January 1, 2004, at 103. The total bond issue has a face value of $600,000, pays 10 percent interest semi-annually, and has a 10-year maturity. Any premium or discount is amortized using the effective interest method. Gild paid $588,000 for its 100% investment in Leeds's bonds and intends to hold the bonds until maturity. Assume Gild accounts for its investment in Leeds stock using the fully adjusted equity method. Required: 1. Compute the gain from the purchase of Leeds's debt. 2. Present the worksheet entries necessary to eliminate intercompany debt and intercompany receivables/payables for 2008. 3. Present the worksheet entries necessary to eliminate intercompany debt and intercompany receivables/payables for 2009. Face Amount 600,000 Leeds issue of debt Bond Value 1.03 618000 Face Rate Effective Rate 10% 9.53% Semi-Annual Date Payment Interest Amortizat Premium Bond value 1/1/2004 7/1/2004 30,000 29,442 1/1/2005 30,000 29,415 7/1/2005 30,000 29,387 1/1/2006 30,000 29,358 7/1/2006 30,000 29,328 1/1/2007 30,000 29,296 7/1/2007 30,000 29,262 1/1/2008 30,000 29,227 7/1/2008 30,000 29,190 1/1/2009 30,000 29,152 7/1/2009 30,000 29,111 1/1/2010 30,000 29,069 7/1/2010 30,000 29,024 -18,000 618,000 558 -17,442 617,442 585 -16,857 616,857 613 642 -15,603 615,603 672 -14,931 614,931 704 -14,226 614,226 738 -13,488 613,488 773 -12,715 612,715 810 -11,906 611,906 848 -11,057 611,057 889 -10,168 610,168 -16,245 616,245 931 -9,237 609,237 976 -8,262 608,262 1/1/2011 30,000 28,978 1,022 -7,240 607,240 7/1/2011 30,000 28,929 1,071 -6,169 606,169 1/1/2012 30,000 28,878 1,122 -5,047 605,047 7/1/2012 30,000 28,825 1,175 -3,872 603,872 1/1/2013 30,000 28,769 1,231 -2,641 602,641 7/1/2013 30,000 28,710 1,290 -1,351 601,351 1/1/2014 30,000 28,649 1,351 0 600,000 Face Amount Gild purchase of leeds debt Bond Value 600,000 98 Face Rate Effective Rate 10% 10.46% Semi-Annual Date Payment Interest Amortizati Discount Bond value 1/1/2008 588,000 7/1/2008 30,000 30,744 744 588,744 1/1/2009 7/1/2009 30,000 30,000 30,783 783 589,527 30,824 824 590,351 1/1/2010 30,000 30,867 867 591,218 7/1/2010 30,000 30,912 1/1/2011 30,000 7/1/2011 30,000 31,010 1/1/2012 30,000 31,063 912 592,130 30,960 960 593,090 1,010 594,100 1,063 595,163 7/1/2012 30,000 31,119 1,119 596,282 1/1/2013 30,000 31,177 1,177 597,459 7/1/2013 30,000 31,239 1,239 598,697 1/1/2014 30,000 31,303 1,303 600,001