On January 1, 2007, Gild Company acquired 70 percent of the outstanding common stock of Leeds Company at the book value of the shares acquired. On that date, the fair value of non-controlling interest was equal to 30 percent of book value of Leeds. At the time of purchase, Leeds had common stock of $1,000,000 outstanding and retained earnings of $800,000. On January 1, 2008, Gild purchased 100% of Leedss bonds outstanding. This debt was originally issued on December 31, 2003, at 103. The total bond issue has a face value of $600,000, pays 10.5 percent interest semi- annually, and has a 10-year maturity. Any premium or discount is amortized using the effective interest method. Gild paid $590,000 for its 100% investment in Leeds's bonds and intends to hold the bonds until maturity. Assume Gild accounts for its investment in Leeds stock using the fully adjusted equity method. Required: 1. Compute the gain from the purchase of Leeds's debt. 2. Present the worksheet entries necessary to eliminate intercompany debt and intercompany receivables/payables for 2008. 3. Present the worksheet entries necessary to eliminate intercompany debt and intercompany receivables/payables for 2009. Leeds issue of debt Face Bond Value Amount 1.03 600,000 618000 Face Rate Effective Rate 10.5% 10.02% 600,033 Semi-Annual Date Payment Interest Amortizat Premium Bond value 12/31/2003 -18,000 618,000 6/30/2004 31,500 30,957 543 -17,457 617,457 12/31/2004 31,500 30,930 570 -16,887 616,887 6/30/2005 31,500 30,901 599-16,289 616,289 12/31/2005 31,500 30,871 629 -15,660 615,660 6/30/2006 31,500 30,840 660 -15,000 615,000 12/31/2006 31,500 30,807 693 -14,307 614,307 6/30/2007 31,500 30,772 728 -13,579 613,579 12/31/2007 31,500 30,736 764 -12,815 612,815 6/30/2008 31,500 30,697 803 -12,012 612,012 12/31/2008 31,500 30,657 843 -11,169 611,169 6/30/2009 31,500 30,615 885 -10,284 610,284 12/31/2009 31,500 30,571 929 -9,355 609,355 6/30/2010 31,500 30,524 976 -8,379 608,379 12/31/2010 31,500 30,475 1,025 -7,354 607,354 6/30/2011 31,500 30,424 1,076 -6,278 606,278 12/31/2011 31,500 30,370 1,130 -5,148 605,148 6/30/2012 31,500 30,313 1,187 -3,962 603,962 12/31/2012 31,500 30,254 1,246 -2,716 602,716 6/30/2013 31,500 30,192 1,308 -1,407 601,407 12/31/2013 31,500 30,126 1,374 -33 600,033 Gild purchase of leeds debt Face Bond Amount Value 98 600,000 Face Rate Effective Rate 10.5% 10.89% Semi-Annual Date Payment Interest Amortizati Discount Bond value 1/1/2008 590,000 6/30/2008 31,500 32,118 618 590,618 12/31/2008 31,500 32,152 652 591,270 6/30/2009 31,500 32,187 687 591,957 12/31/2009 31,500 32,225 725 592,682 6/30/2010 31,500 32,264 764 593,446 12/31/2010 31,500 32,306 806 594,252 6/30/2011 31,500 32,350 850 595,101 12/31/2011 31,500 32,396 896 595,997 6/30/2012 31,500 32,445 945 596,942 12/31/2012 31,500 32,496 996 597,938 6/30/2013 31,500 32,550 1,050 598,988 12/31/2013 31,500 32,607 1,107 600,095