Cais owns 70 percent of the voting stock of Hamilton, Inc. The parent\'s interes
ID: 2603030 • Letter: C
Question
Cais 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 $1,600,000 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, 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.) Date Consolidating Entries Debit Credit (1) Prepare entry B December 31, 2013 (2) Prepare entry "B December 31, 2014Explanation / Answer
Cairns Date Consolidating Entries Debit Credit (1) Prepare Entry B 01-Jan-13 Hamilton Bonds 640000 Bond discount 25600 Bank 614400 (Acquisition of 9% Hamilton Bonds at 4% discount) 31-Dec-13 Bank 57600 Hamilton Bonds 57600 (Income from investment) 31-Dec-13 Amortization of Bond Discount 3989 Bond discount 3989 (Amortization of Bond Discount over 10 years at 9%) (2) Prepare Entry B 31-Dec-14 Bank 57600 Hamilton Bonds 57600 (Income from investment) 31-Dec-14 Amortization of Bond Discount 3989 Bond discount 3989 (Amortization of Bond Discount over 10 years at 9%) (3) Prepare Entry B 31-Dec-15 Bank 57600 Hamilton Bonds 57600 (Income from investment) Amortization of Bond Discount 3989 Bond Discount 3989 (Amortization of Bond Discount over 10 years at 9%)