Suspect Company issued $600,000 of 9 percent first mortgage bonds on January 1, 20X1, at 103. The bonds mature in 20 years and pay interest semiannually on January 1 and July 1. Prime Corporation purchased $400,000 of Suspects bonds from the original purchaser on January 1, 20X5, for $396,800. Prime owns 60 percent of Suspects voting common stock. (Assume using straight-line amortization of bond discount or premium.)

a. Prepare the worksheet consolidation entry or entries needed to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements for 20X5.

Bonds Payable 400,000

Premium on Bonds Payable 9,000

Interest Income ??

Invest in Suspect Company Bonds 397,000

Interest Expense ??

Gain on bond retirement ??