Problem 5

Partial adjusted trial balances for Pongo Corporation and its 90%-owned subsidiary, Song Corporation, for the year ended December 31, 2006, are as follows:

Pongo Corporation

Debit (Credit) Song Corporation

Debit (Credit)

Interest receivable $- $1,000

Investment in Pongo bonds - 52,700

Interest payable (2000) -

8% bonds payable, due April 2009 (98,200) -

Interest income - (2,100)

Interest expense 8,800 -

Song Corporation acquired $50,000 par of Pongo Bonds on April 1, 2006, for $53,600. The bonds pay interest on April 1 and October 1 and mature on April 1, 2009.

Required:

1. Compute gain or loss on the bonds that will appear in the 2006 consolidated income statement.

2. Determine the amounts of interest income and interest expense that will appear in the 2006 consolidated income statement.

3. Determine the amounts of interest receivable and interest payable that will appear in the December 31, 2006, consolidated balance sheet.

4. Prepare in general journal from consolidation working papers entries needed to eliminate the effect of the intercompany bonds for 2006.

Problem 5 Partial adjusted trial balances for Pongo Corporation and its 90%-owned subsidiary, Song Corporation, for the year ended December 31, 2006, are as follows: Pongo Corporation Song Corporation Debit (Credit) Debit (Credit) Interest receivable $1,000 Investment in Pongo bonds 52,700 Interest payable (2000) 8% bonds payable, due April (98,200) 2009 Interest income (2,100) Interest expense 8,800 Song Corporation acquired $50,000 par of Pongo Bonds on April 1, 2006, for $53,600. The bonds pay interest on April 1 and October 1 and mature on April 1, 2009. Required: 1. Compute gain or loss on the bonds that will appear in the 2006 consolidated income statement. 2. Determine the amounts of interest income and interest expense that will appear in the 2006 consolidated income statement. 3. Determine the amounts of interest receivable and interest payable that will appear in the December 31, 2006, consolidated balance sheet. 4. Prepare in general journal from consolidation working papers entries needed to eliminate the effect of the intercompany bonds for 2006