Pepper Enterprises owns 95 percent of Salt Corporation. On January 1, 20X1, Salt issued $220,000 of five-year bonds at 115. Annual interest of 10 percent is paid semiannually on January 1 and July 1. Pepper purchased $120,000 of the bonds on August 31, 20X3, at par value. The following balances are taken from the separate 20X3 financial statements of the two companies: Note: Assume using straight-line amortization of bond discount or premium. Pepper Enterprises Salt Corporation Investment in Salt Corporation Bonds $ 125,700 Interest Income 4,367 Interest Receivable 6,000 Bonds Payable $ 220,000 Bond Premium 20,600 Interest Expense 15,400 Interest Payable 12,000.

Required: a. Compute the amount of interest expense that should be reported in the consolidated income statement for 20X3. (Do not round intermediate calculations. Round your final answer to nearest whole dollar.) Required:

Interest expense

b. Compute the gain or loss on constructive bond retirement that should be reported in the 20X3 consolidated income statement. (Do not round intermediate calculations. Round your final answer to nearest whole dollar.)

Gain

on bond retirement

c. Prepare the consolidation worksheet consolidation entry or entries as of December 31, 20X3, to remove the effects of the intercorporate bond ownership. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Round your final answers to nearest whole dollar.)

(a) Record the entry to eliminate the effects of the intercompany ownership in bonds for 20X3.

Event	Accounts	Debit	Credit
1

(b)Record the entry to eliminate the intercompany interest receivables/payables for 20X3.

Event	Accounts	Debit	Credit
2

Stallion Corporation sold $130,000 par value, 10-year first mortgage bonds to Pony Corporation on January 1, 20X5. The bonds, which bear a nominal interest rate of 12 percent, pay interest semiannually on January 1 and July 1. The entry to record interest income by Pony Corporation on December 31, 20X7, was as follows: Note: Assume using straight-line amortization of bond discount or premium.

General Journal	Debit	Credit
Interest Receivable	7,800
Interest Income		7,410
Investment in Stallion Corporation Bonds		390

Pony Corporation owns 65 percent of the voting stock of Stallion Corporation, and consolidated statements are prepared on December 31, 20X7. Required: a. What was the original purchase price of the bonds to Pony Corporation?

Original purchase price

b. What is the balance in Ponys bond investment account on December 31, 20X7?

Bond investment account

c. Prepare the worksheet elimination entry or entries needed to remove the effects of the intercompany ownership of bonds in preparing consolidated financial statements for 20X7. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

(a)Record the entry to eliminate the effects of the intercompany ownership in the bonds.

Event	Accounts	Debit	Credit
1

(b)Record the entry to eliminate the intercompany interest receivables/payables.

Event	Accounts	Debit	Credit
2