Computations and entries (parent purchases subsidiary bonds)
Pub Corporation, which owns an 80 percent interest in Sap Corporation, purchases $100,000 of Sap’s 8 percent bonds at 106 on July 2, 2011. The bonds pay interest on January 1 and July 1 and mature on July 1, 2014. Pub uses the equity method for its investment in Sap. Selected data from the December 31, 2011, trial balances of the two companies are as follows:
|
Pub |
Sap |
|
|
Interest receivable |
$ 4,000 |
$ — |
|
Investment in Sap 8% bonds |
105,000 |
— |
|
Interest payable |
— |
40,000 |
|
8% bonds payable ($1,000,000 par) |
— |
985,000 |
|
Interest income |
3,000 |
— |
|
Interest expense |
— |
86,000 |
|
Gain or loss on retirement of intercompany bonds |
REQUIRED
1. Determine the amounts for each of the foregoing items that will appear in the consolidated financial statements on or for the year ended December 31, 2011.
2. Prepare in general journal form the workpaper adjustments and eliminations related to the foregoing bonds that are required to consolidate the financial statements of Pub and Sap Corporations for the year ended December 31, 2011.
3. Prepare in general journal form the workpaper adjustments and eliminations related to the bonds that are required to consolidate the financial statements of Pub and Sap Corporations for the year ended December 31, 2012.