Caims owns 70 percent of the voting stock of Hamilton, Inc. The parent\'s intere

Question

Caims 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.) Answer is not complete. Consolidating Entries Debit Credit Date (1) Prepare entry B December 31, 2013 640,000 25,600 Bonds payable Discount on bonds payable Bonds payable Interest income Investment in Hamilton Amortization expense Discount on bonds payable 614,400 57,600 57,600 3,989 3,989 (2) Prepare entry *E December 31, 2014 Interest income Investment in Hamilton Amortization expense Bonds payable 57,600 57,600 3,989 * 3,989 (3) Prepare entry "B December 31, 2015 57,600 Discount on bonds payable Bonds payable Amortization expense Bonds payable 57,600 3,989 3,989

Explanation / Answer

Consolidation entries:

Date

Account title

Debit

Credit

1) Dec 13, 2013:
Entry B

Bonds payable (1,600,000*40%)
Premium on bonds payable
Interest income (640,000*9%)+3,200
    Investment in bonds [(640,000*96%)+(640,000-614,400)/ 8years remaining life)
    Interest expense
    Gain on retirement of bonds

640,000
22,400
60,800

617,600
54,400
51,200

2) Dec 13, 2014:
Entry B

Bonds payable (1,600,000*40%)
Premium on bonds payable (22,400-3,200)
Interest income (640,000*9%)+3,200
    Investment in bonds [(640,000*96%)+(640,000-614,400)/ 8years remaining life)
    Interest expense
    Investment in Hamilton

640,000
19,200
60,800

620,800
54,400
44,800

3) Dec 13, 2015:
Entry B

Bonds payable (1,600,000*40%)
Premium on bonds payable (19,200-3,200)
Interest income (640,000*9%)+3,200
    Investment in bonds [(640,000*96%)+(640,000-614,400)/ 8years remaining life)
    Interest expense
    Investment in Hamilton

640,000
16,000
60,800

624,000
54,400
38,400

Date

Account title

Debit

Credit

1) Dec 13, 2013:
Entry B

Bonds payable (1,600,000*40%)
Premium on bonds payable
Interest income (640,000*9%)+3,200
    Investment in bonds [(640,000*96%)+(640,000-614,400)/ 8years remaining life)
    Interest expense
    Gain on retirement of bonds

640,000
22,400
60,800

617,600
54,400
51,200

2) Dec 13, 2014:
Entry B

Bonds payable (1,600,000*40%)
Premium on bonds payable (22,400-3,200)
Interest income (640,000*9%)+3,200
    Investment in bonds [(640,000*96%)+(640,000-614,400)/ 8years remaining life)
    Interest expense
    Investment in Hamilton

640,000
19,200
60,800

620,800
54,400
44,800

3) Dec 13, 2015:
Entry B

Bonds payable (1,600,000*40%)
Premium on bonds payable (19,200-3,200)
Interest income (640,000*9%)+3,200
    Investment in bonds [(640,000*96%)+(640,000-614,400)/ 8years remaining life)
    Interest expense
    Investment in Hamilton

640,000
16,000
60,800

624,000
54,400
38,400

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