Smart Company issued $123,000 of 10 percent bonds on January 1, 20X1, at 120. The bonds mature in 10 years and pay 10 pe

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Smart Company Issued 123 000 Of 10 Percent Bonds On January 1 20x1 At 120 The Bonds Mature In 10 Years And Pay 10 Pe 1 (37.45 KiB) Viewed 32 times

Smart Company issued $123,000 of 10 percent bonds on January 1, 20X1, at 120. The bonds mature in 10 years and pay 10 percent interest annually on December 31. Phone Corporation holds 80 percent of Smart's voting shares, acquired on January 1, 20X1, at underlying book value. On January 1, 20X4, Phone purchased Smart bonds with a par value of $47,500 from the original purchaser for $52,250. Phone uses the modified equity method in accounting for its ownership in Smart. Partial balance sheet data for the two companies on December 31, 20X5, are as follows: Phone Corporation $147,600 Smart Company Investment in Smart Company Stock Investment in Smart Company Bonds Interest Income 51, 145 4,176 Bonds Payable $123,000 Bond Premium 14,398 Interest Expense 9,969 Common Stock 100,000 300,000 500,000 Retained Earnings, December 31, 20X5 50,000 Required: a. Compute the gain or loss on bond retirement reported in the 20X4 consolidated income statement. b. Prepare the consolidation entry needed to remove the effects of the intercorporate bond ownership in completing the consolidation worksheet for 20X5. c. What balance should be reported as consolidated retained earnings on December 31, 20X5?