P8-26 Intercorporate Bond Holdings and Other Transfers (Effective Interest Method) On January 1, 20X5, Pond Corporation purchased 75 percent of Skate Company's stock at underlying book value. At that date, the fair value of the noncontrolling interest was equal to 25 percent of Skate's book value. The balance sheets for Pond and Skate at January 1, 20X8, and December 31, 20X8, and income statements for 20X8 were reported as follows: 20X8 Balance Sheets Pond Corporation Skate Company January 1 December 31 January 1 December 31 Cash Accounts Receivable Interest & Other Receivables Inventory $ 57,600 130,000 $ 53,100 176,000 $ 10,000 $ 47,000 60,000 65,000 40,000 45,000 8,000 10,000 100,000 140,000 50,000 50,000 Land 50,000 50,000 22,000 22,000 Buildings & Equipment 400,000 400,000 240,000 240,000 Accumulated Depreciation (150,000) (185,000) (70,000) (94,000) Investment in Skate Company: Stock 122,327 139,248 Bonds 42,800 42,494 Investment in Tin Co. Bonds 135,000 Total Assets $927,727 134,000 $994,842 Accounts Payable $ 60,000 $ 65,000 Interest & Other Payables 40,000 45,000 Bonds Payable 300,000 300,000 100,000 $320,000 $ 16,500 7,000 $ 11,000 12,000 100,000 $340,000 Bond Discount (4,005) (3,597) Common Stock 150,000 150,000 30,000 30,000 Additional Paid-In Capital 155,000 155,000 20,000 20,000 Retained Earnings 222,727 279,842 150,505 170,597 Total Liabilities & Equities $ 927,727 $994,842 $320,000 $340,000 Pond Corporation 20X8 Income Statements Skate Company Sales Income from Skate Interest Income $450,000 $250,000 24,421 18,594 Total Revenue $493,015 $250,000 Cost of Goods Sold $285,000 $136,000 Other Operating Expenses 50,000 40,000 Depreciation Expense 35,000 24,000 Interest Expense 24,000 10,408 Miscellaneous Expenses 11,900 405,900 9,500 219,908 Net Income $ 87,115 $ 30,092 Additional Information 1. Pond sold a building to Skate for $65,000 on December 31, 20X7. Pond had purchased the building for $125,000 and was depreciating it on a straight-line basis over 25 years. At the time of sale, Pond reported accumulated depreciation of $75,000 and a remaining life of 10 years. 2. On July 1, 20X6, Skate sold land that it had purchased for $22,000 to Pond for $35,000. Pond is planning to build a new warehouse on the property prior to the end of 20X9. 3. Skate issued $100,000 par value, 10-year bonds with a coupon rate of 10 percent on January 1, 20X5, at $95,000. On December 31, 20X7, Pond purchased $40,000 par value of Skate's bonds for $42,800. Interest payments are made on July 1 and January 1. 4. Pond and Skate paid dividends of $30,000 and $10,000, respectively, in 20X8. Required Prepare all consolidation entries needed at December 31, 20X8.