Intercompany Financing Transactions

Sessions Athletic Gear borrowed $5,000,000 from its parent, PF Consolidated Inc., at an interest rate of 5%. The loan was made on September 30, 2016, with interest due semiannually on March 31 and September 30 of each year, and principal due in 2020. PFs accounting year ends on December 31. You are doing the consolidation working paper at December 31, 2017. The loan is still outstanding, and Sessions has made interest payments is required.

Required

a. What balances appear in the December 31, 2017, trial balances of PF and Sessions with respect to this intercompany loan? What balances should appear on the consolidated financial statements?

b. Prepare the working paper eliminating entries needed for this intercompany loan at December 31.