Question
Purse Corporation owns 70 percent of Scarf Companys voting shares. On January 1, 20X3, Scarf sold bonds with a par value of $600,000 at 98.
Purse Corporation owns 70 percent of Scarf Companys voting shares. On January 1, 20X3, Scarf sold bonds with a par value of $600,000 at 98. Purse purchased $400,000 par value of the bonds; the remainder was sold to nonaffiliates. The bonds mature in five years and pay an annual interest rate of 8 percent. Interest is paid semiannually on January 1 and July 1.
Required:
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What amount of interest expense should be reported in the 20X4 consolidated income statement?
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Prepare the journal entries Purse recorded during 20X4 with regard to its investment in Scarf bonds.
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Prepare all worksheet consolidation entries needed to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements for 20X4.
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