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All Exam in 2016-2017 From Test Bank

This document provides journal entries for Sabu and Peerless related to bonds issued by Sabu that were later purchased by Peerless. It includes entries on Sabu's books from 2010-2015 for the bond issuance and payments. It includes entries on Peerless' books from 2010-2015 for purchasing the bonds and receiving interest payments. It also includes elimination entries for the consolidation from 2011-2015.

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Hamza Jalal
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64 views3 pages

All Exam in 2016-2017 From Test Bank

This document provides journal entries for Sabu and Peerless related to bonds issued by Sabu that were later purchased by Peerless. It includes entries on Sabu's books from 2010-2015 for the bond issuance and payments. It includes entries on Peerless' books from 2010-2015 for purchasing the bonds and receiving interest payments. It also includes elimination entries for the consolidation from 2011-2015.

Uploaded by

Hamza Jalal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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All exam in 2016-2017 from test bank

) Sabu is a 65%-owned subsidiary of Peerless. On January 1, 2010, Sabu issued $1,000,000 of $1,000 face
amount 8% bonds at $980 per bond. The bonds have interest payments on December 31 of each year and
mature on January 1, 2015. On January 1, 2011, Peerless purchased all 1,000 bonds on the open market for
$1,010 per bond. Straight-line amortization is used by both companies.

Required: With respect to the bonds, use General Journal format to:
1. Record the journal entries on Sabu's books made from 2010 to 2015.
2. Record the journal entries on Peerless' books made from 2010 to 2015.
3. Record the elimination entries for the consolidation working papers for 2010 through 2015.
Answer:
Requirement 1

Date Account Name Debit Credit


Sabu's Books
1/1/10 Cash 980,000
Bond Discount 20,000
Bonds Payable 1,000,000

12/31/10 Interest Expense 80,000


Cash 80,000
Interest Expense 4,000
Bond Discount 4,000

12/31/11 Same as entry for prior year end

12/31/12 Same as entry for prior year end

12/31/13 Same as entry for prior year end

12/31/14 Same as entry for prior year end

1/1/15 Bonds Payable 1,000,000


Cash 1,000,000
Requirement 2
Peerless Books
2010 - No entry

1/1/11 Investment in Bonds 1,010,000


Cash 1,010,000
12/31/11 Cash 80,000
Interest Income 80,000
Interest Income 2,500
Investment in Bonds 2,500

12/31/12 Same as entry for prior year end

12/31/13 Same as entry for prior year end

12/31/14 Same as entry for prior year end

1/1/15 Cash 1,000,000


Investment in Bonds 1,000,000
Requirement 3
2010 — No entry required — bonds owned by third party

12/31/11 Bonds Payable 1,000,000


Interest Income 77,500
Loss on Bond Retirement 26,000
Investment in Bonds 1,007,500
Interest Expense 84,000
Bond Discount 12,000

12/31/12 Bonds Payable 1,000,000


Interest Income 77,500
Investment in Sabu 12,675
Noncontrolling interest 6,825
Investment in Bonds 1,005,000
Interest Expense 84,000
Bond Discount 8,000

12/31/13 Bonds Payable 1,000,000


Interest Income 77,500
Investment in Sabu 8,450
Noncontrolling interest 4,550
Investment in Bonds 1,002,500
Interest Expense 84,000
Bond Discount 4,000

12/31/14 Bonds Payable 1,000,000


Interest Income 77,500
Investment in Sabu 4,225
Noncontrolling interest 2,275
Investment in Bonds 1,000,000
Interest Expense 84,000

12/31/15 No entry required


Objective: LO2, 3
Difficulty: Moderate

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