Smart Company issued $118,000 of 10 percent bonds on January 1, 20X1, at 120. The bonds mature in 10 years and pay 10 pe
Posted: Fri Mar 04, 2022 9:44 am
Smart Company issued $118,000 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 $49,000 from the original purchaser for
$53,900. 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:
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?
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 $49,000 from the original purchaser for
$53,900. 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:
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?