Alpha Company owns 80 percent interest in Omega Companys outstanding voting stock.

On January 1, 2015, Omega issued $1 million in 10-year bonds at 9 percent.

Omega sold the bonds at $938,555 to yield an effective interest of 10 percent.

On January 1, 2017, Alpha purchased the bonds back for $1,057,466, with effective interest at 8 percent.

The difference between the $1,057,466 payment and the January 1, 2017, carrying value of the liability must be recognized in the consolidated statements as a gain or loss.

2) Prepare the journal entry for Omega on 1/1/2015.

3) Prepare the journal entry of annual cash interest for Omega on 12/31/2017.

4) Prepare the journal entry to adjust cash interest to effective rate for Omega on 12/31/2017.

Alpha Company accounting records

5)Prepare the Alpha Company bond purchase amortization schedule.

Date	Face Value	Unamortized Premium	Carrying Amount	Effective interest	Cash Interest	Premium Amortized
1/1/2017
12/31/2017
12/31/2018

6)Prepare the journal entry to record the acquisition of Omegas bond on 1/1/2017.

7) Prepare the journal entry to record receipt of cash interest from Omega Company on 12/31/2017.

8) Prepare the journal entry to adjust cash interest to effective rate for Alpha Company on 12/31/2017.

9) What is the net carrying value of Omegas bond on 1/1/2017? What is Alphas purchase price? What is the gain/loss should be recognized?

10) Prepare the consolidation journal entry B on 12/31/2017.

Consolidate journal entry B on 12/31/2017

Years subsequent to effective

11) Prepare the journal entry of annual cash interest for Omega on 12/31/2018.

12) Prepare the journal entry to adjust cash interest to effective rate for Omega on 12/31/2018.

13) Prepare the journal entry to record receipt of cash interest from Omega Company on 12/31/2018.

14) Prepare the journal entry to adjust cash interest to effective rate for Alpha Company on 12/31/2018.

15) Prepare the consolidation journal entry B on 12/31/2018 when parent uses the equity method.

Consolidate journal entry *B on 12/31/2018