Peerless Corporation acquires 80 percent of the common stock of Special Foods Co. Inc. on December 31, 20X0, for its underlying book value of $240,000.

At that date, the fair value of the noncontrolling interest is equal to its book value of $60,000.

Additionally:

1. On January 1, 20X1, Special Foods Co. (the sub) issues 10-year, 12 percent bonds payable with a par value of $100,000; the bonds are issued at 102. Nonaffiliated Corporation purchases the bonds from Special Foods Co.

2. The bonds pay interest on June 30 and December 31.

3. Both Peerless and Special Foods amortize bond discount and premium using the straight-line method.

4. On December 31, 20X1, Peerless (the parent) purchases the bonds from Nonaffiliated for $91,000.

5. Special Foods Co. reports net income of $50,000 for 20X1 and $75,000 for 20X2 and declares dividends of $30,000 in 20X1 and $40,000 in 20X2.

6. Peerless earns $140,000 in 20X1 and $160,000 in 20X2 from its own separate operations. Peerless declares dividends of $60,000 in both 20X1 and 20X2.

Prepare the journal entries for Special Foods (the debtor) related to the bonds during 2011.

Prepare the journal entries for Peerless (the lender) related to its bond investment in 2011.

Prepare the journal entries for Peerless (the lender) to account for its stock investment in 2011, under the fully adjusted equity method.

Prepare the worksheet elimination entries needed on December 31, 2011, to remove the effects of the intercorporate ownership of bonds.

Prepare the journal entries for Special Foods (the debtor) related to the bonds during 2012.

Prepare the journal entries for Peerless (the lender) related to its bond investment in 2012.

Prepare the journal entries for Peerless (the lender) to account for its stock investment in 2012, under the fully adjusted equity method.

Prepare the worksheet elimination entries needed on December 31, 2012, to remove the effects of the intercorporate ownership of bonds.