Porter Company purchased 60 percent ownership of Temple Corporation on January 1
ID: 2599335 • Letter: P
Question
Porter Company purchased 60 percent ownership of Temple Corporation on January 1, 20X1, at underlying book value. At that date, the fair value of the noncontrolling interest was equal to 40 percent of Temple’s book value. On January 1, 20X1, Porter sold $77,000 par value, 8 percent, five-year bonds directly to Temple for $79,000 and the market interest rate was 7 percent. The bonds pay interest annually on December 31. Porter uses the fully adjusted equity method in accounting for its ownership of Temple. On December 31, 20X2, the trial balances of the two companies are as follows:
Prepare the journal entry or entries for 20X2 on Porter’s books related to its investment in Temple. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Prepare the journal entry or entries for 20X2 on Porter’s books related to its bonds payable. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Prepare the journal entry or entries for 20X2 on Temple’s books related to its investment in Porter's bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Prepare the consolidation entries needed to complete a consolidated worksheet for 20X2. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Prepare a three-part consolidated worksheet for 20X2. (Values in the first two columns (the "parent" and "subsidiary" balances) that are to be deducted should be indicated with a minus sign, while all values in the "Consolidation Entries" columns should be entered as positive values. For accounts where multiple adjusting entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet.)
Porter Company purchased 60 percent ownership of Temple Corporation on January 1, 20X1, at underlying book value. At that date, the fair value of the noncontrolling interest was equal to 40 percent of Temple’s book value. On January 1, 20X1, Porter sold $77,000 par value, 8 percent, five-year bonds directly to Temple for $79,000 and the market interest rate was 7 percent. The bonds pay interest annually on December 31. Porter uses the fully adjusted equity method in accounting for its ownership of Temple. On December 31, 20X2, the trial balances of the two companies are as follows:
Note: Assume using straight-line amortization of bond discount or premium.Explanation / Answer
a) Journal Entries in Porter’s books related to its investment in Temple. Debit Credit Cash $5,400.00 Investment in Temple Corporation $5,400.00 Record dividends from Temple( $9,000 x 60%) Investment in Temple Corporation $29,400.00 Income from Subsidiary $29,400.00 Record equity-method income b) Journal entries for Porter’s books related to its bonds payable Interest Expense $5,760.00 Bond Premium $400.00 Cash ($77,000 x 8%) $6,160.00 Record interest payment = ($79,000 - $77,000) / 5 years = $400.00 c) Journal entries on Temple’s books related to its investment in Porter's bonds Cash $6,160.00 Interest Income $5,760.00 Investment in Porter Company Bonds $400.00 d) Basic Elimination Entry Common stock $82,000.00 Retained Earnings $32,000.00 Income from Temple Co. $29,400.00 NCI in NI of Temple Co. $19,600.00 Dividends declared $9,000.00 Investment in Temple Co. $92,400.00 NCI in NA of Temple Co. $61,600.00 NCI 40% + Porter Company 60% = Common Stock + retained Earnings Original book value $45,600.00 $68,400.00 $82,000.00 $32,000.00 + Net Income $19,600.00 $29,400.00 $49,000.00 - Dividends -$3,600.00 -$5,400.00 -$9,000.00 Ending Book Value $61,600.00 $92,400.00 $82,000.00 $72,000.00 Eliminate intercorporate bond holdings Bonds Payable $77,000.00 Interest Income $5,760.00 Bond Premium $1,200.00 Investment in Temple Co.'s Bonds $78,200.00 Interest Expense $5,760.00