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. Note: 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.

Bond Payable Debit $400,000

Premium on Bond Debit $9,000

Interest Income Debit $______

Investment in Suspect Bond Credit $397,000

Interest Expense Credit $_________

Gain on Bond Retirement Credit $ _________

Interest Payable Debit $18,000

Interest Receivable Credit $18,000

b. Prepare the worksheet consolidation entry or entries needed to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements for 20X6.

Bonds Payable Debit $400,000

Premium on Bonds Debit $8,400

Interest Income Debit $_______

Investment in Suspect Bonds Credit $397,200

Interest Expense Credit $_________

Investment in Suspect Company Credit $________

NCI of NA of Suspect Company Credit $4,800

Interest Payable Debit $18,000

Interest Receivable Debit $18,000