Wood Corporation owns 70 percent of Carter Companys voting shares. On January 1, 20X3, Carter sold bonds with a par value of $735,000 at 98. Wood purchased $490,000 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:

a.	What amount of interest expense should be reported in the 20X4 consolidated income statement? (Do not round your intermediate calculations. Round your final answers to nearest whole dollar.)

b.

Prepare the journal entries Wood recorded during 20X4 with regard to its investment in Carter bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your market rate of interest to 3 decimals. For example, .0547523 should be rounded to 5.475%)

Journal entry worksheet

Transaction Index :

Record the interest received on the bonds.

Record the interest received on the bonds.

Record the interest receivable on the bonds.

Note: Enter debits before credits.

Date

General Journal

Debit

Credit

July 01	Cash	19,600
	Investment in Carter Company bonds
	Interest income

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c.

Prepare all worksheet consolidation entries needed to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements for 20X4. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your market rate of interest to 3 decimals. For example, .0547523 should be rounded to 5.475%)

Consolidation Worksheet Entries

Transaction Index :

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

Event

Accounts

Debit

Credit

1	Bonds payable	490,000
	Interest income
	Investment in Carter Company bonds
	Bond discount
	Interest expense

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