Cairns owns 70 percent of the voting stock of Hamilton, Inc. The parent’s intere
ID: 2467186 • Letter: C
Question
Cairns owns 70 percent of the voting stock of Hamilton, Inc. The parent’s interest was acquired several years ago on the date that the subsidiary was formed. Consequently, no goodwill or other allocation was recorded in connection with the acquisition. Cairns uses the equity method in its internal records to account for its investment in Hamilton. On January 1, 2011, Hamilton sold $1,300,000 in 10-year bonds to the public at 105. The bonds had a cash interest rate of 8 percent payable every December 31. Cairns acquired 40 percent of these bonds at 96 percent of face value on January 1, 2013. Both companies utilize the straight-line method of amortization. Prepare the consolidation worksheet entries to recognize the effects of the intra-entity bonds at each of the following dates. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Explanation / Answer
Hamilton Cairns Consolidated Date Account Head Debit Credit Account Head Debit Credit Account Head Debit Credit 01-Jan-11 Cash 13,65,000.00 Same entry will be consolidated Bond Payable 13,65,000.00 31-Dec-11 Interest Expense 97,500.00 Same entry will be consolidated Bond Payable 6,500.00 Cash 1,04,000.00 31-Dec-12 Interest Expense 97,500.00 Same entry will be consolidated Bond Payable 6,500.00 Cash 1,04,000.00 01-Jan-13 Investment in Bonds 4,99,200.00 Bonds Payable 5,40,800.00 Cash 4,99,200.00 Investment in Bonds 4,99,200.00 Reserve 41,600.00 (1365000-6500-6500)*.40=540800