Cairns owns 70 percent of the voting stock of Hamilton, Inc. The parent\'s inter
ID: 2592685 • 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, 2014, Hamilton sold $1,600,000 in 10-year bonds to the public at 105. The bonds had a cash interest rate of 9 percent payable every December 31. Cairns acquired 40 percent of these bonds at 96 percent of face value on January 1, 2016. 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.) a. December 31, 2016 b. December 31, 2017 c. December 31, 2018Explanation / Answer
a.
Date
General Journal
Debit
Credit
December 31 2016
Bonds Payable
640000
Premium on bonds payable
25600
Interest Income
59600
Investment in Bonds
616000
Interest Expense
55600
Gain on Retirement of Bonds
53600
b.
Date
General Journal
Debit
Credit
December 31 2017
Bonds Payable
640000
Premium on bonds payable
23600
Interest Income
59600
Investment in Bonds
616400
Interest Expense
55600
Investment in Hamilton
51200
c.
Date
General Journal
Debit
Credit
December 31 2018
Bonds Payable
640000
Premium on bonds payable
21600
Interest Income
59600
Investment in Bonds
618400
Interest Expense
55600
Investment in Hamilton
47200
Date
General Journal
Debit
Credit
December 31 2016
Bonds Payable
640000
Premium on bonds payable
25600
Interest Income
59600
Investment in Bonds
616000
Interest Expense
55600
Gain on Retirement of Bonds
53600