#4

Plug Corporation purchased $119,000 par value bonds of its subsidiary, Spark Company, on December 31,205, from Lemon Corporation. The 10-year bonds bear a 9 percent coupon rate, and Spark originally sold them on January 1,203, to Lemon. Interest is paid annually on December 31 . Plug owns 85 percent of the stock of Spark. In preparing the consolidation worksheet at December 31, 20X6, Plug's controller made the following entry to eliminate the effects of the intercorporate bond ownership: Required: With the information given, answer the following questions: a. What amount did Plug pay when it purchased Spark's bonds? b. Prepare the journal entry made by Spark in 206 to record its interest expense for the year. c. Prepare the journal entry made by Plug in 206 to record its interest income on the Spark bonds that it holds