Nettle Corporation sold $100,000 par value, 10-year first mortgage bonds to Timb
ID: 2333633 • Letter: N
Question
Nettle Corporation sold $100,000 par value, 10-year first mortgage bonds to Timberline Corporation on January 1, 20X5 The bonds, which bear a nominal interest rate of 12 percent, pay interest semiannually on January 1 and July 1. The current market interest rate is 11 percent. Timberline Corporation owns 65 percent of the voting stock of Nettle Corporation, and consolidated statements are prepared on December 31, 20X7 Required: a What was the original purchase price of the bonds to Timberline Corporation? (Round your answer to 2 decimal places.) b What is the balance in Timberline's bond investment account on December 31, 20X7? (Do not round your intermediate calculations. Round your final answer to nearest whole dollar.) e Prepare the worksheet consolidation entry or entries needed to remove the effects of the intercompany ownership of bonds in preparing consolidated financial statements for 20X7. (If no entry is required for a journal entry required" in the first account field. Do not round your intermediate calculations. Round your final answer to nearest whole dollar.) select "No Consolidation Worksheet Entries Receed the entry to eliminate the effects of the intercompary ownership inthe Note: EniterExplanation / Answer
a What was the original purchase price of the bonds to Timberline Corporation No of Yrs 10 Semiannual 20 Interest 11% 0.055 Coupon 6000 100000*12%/2 Future Value $100,000 Using the Present Value function in excel we get ($105,975.19) PV(5.5%,20,6000,100000) Original Purchase Price $105,975.19 b What is the balance in Timberline's bond investment account on December 31, 20X7 Years Interest Interest Expense(BV of bonds previous*5.5%) Amortization of Discount (Premium) (Discount) Premium Bonds Payable BV of Bonds 1/1/20X5 $6,000 5975.19 100000 105975.19 07/1/20X5 $6,000 5828.63545 ($171.36) $5,803.83 100000 $105,803.83 1/1/20X6 $6,000 5819.2104 ($180.79) $5,623.04 100000 $105,623.04 07/1/20X6 $6,000 5809.266972 ($190.73) $5,432.30 100000 $105,432.30 1/1/20X7 $6,000 5798.776655 ($201.22) $5,231.08 100000 $105,231.08 07/1/20X7 $6,000 5787.709371 ($212.29) $5,018.79 100000 $105,018.79 1/1/20X8 $6,000 5776.033387 ($223.97) $4,794.82 100000 $104,794.82 Bond Investment Account $104,794.82 c Prepare the worksheet consolidation entryor entries needed to remove the effects of the intercompany ownership of bonds in preparing consolidated financial statementsfor 20X7 Bonds Payable $100,000 Bond Premium $4,794.82 Interest Income $11,564 To Investmentin Nettle Corporation Bonds $104,794.82 To Interest Receivable $11,564 (Being consolidation entry to remove the effects of intercompany onwnership of bonds) d Record the entry to eliminate the intercompany receivables/payables Interest Payable $6,000 To Interest receivable $6,000 (Being entry to eliminate the intercompany receivables/payables)