LO2 & 3

Exercise 7

Caterpillar Inc. is an 80%-owned subsidiary of Bellbird Corp. On January 1, 2005, Caterpillar issued $600,000 of $1,000 face amount 6% bonds at $964 per bond. Interest is paid on January 1 and July 1 of each year and covers the preceding six months. On July 1, 2006, Bellbird purchased all 600 bonds on the open market for $1,030 per bond. The following table shows selected amounts of amortization on the bonds:

Amortization Table for the Bond Discount

Date Remaining Balance

01-01-05 $21,600

12-31-05 14,400

07-01-06 10,800

12-31-06 7,200

12-31-07 0

Required: With respect to the bonds, use General Journal format to:
1.	Record the 2006 journal entries from July 1 to December 31 on Caterpillars books.
2.	Record the 2006 journal entries from July 1 to December 31 on Bellbirds books.
3.	Record the elimination entries for the consolidation working papers at December 31, 2006.