Question
Determining the Amount of Retirement Gain or Loss (Straight-Line Method) Online Enterprises owns 95 percent of Downlink Corporation. On January 1, 20X1, Downlink issued $200,000
Determining the Amount of Retirement Gain or Loss (Straight-Line Method)
Online Enterprises owns 95 percent of Downlink Corporation. On January 1, 20X1, Downlink issued $200,000 of five-year bonds at 115. Annual interest of 12 percent is paid semiannually on January 1 and July 1. Online purchased $100,000 of the bonds on August 31, 20X3, at par value. The following balances are taken from the separate 20X3 financial statements of the two companies:
online enterprise
investment in downlink corp bonds 105,700
interest income 4000
interest recievible 6000
downlink corp
bond payable 200,000
bond premium 12000
interest expense 18000
interest payable 12000
Required
a. Compute the amount of interest expense that should be reported in the consolidated income statement for 20X3.
b. Compute the gain or loss on constructive bond retirement that should be reported in the 20X3 consolidated income statement.
c. Prepare the consolidation worksheet consolidation entry or entries as of December 31, 20X3, to remove the effects of the intercorporate bond ownership.
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