Cairns owns 80 percent of the voting stock of Hamilton Inc T

Cairns owns 80 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 $1,500,000 in 10-year bonds to the public at 105. The bonds had a cash interest rate of 8 percent payable every December 31. Cairns acquired 45 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.)

Prepare entry B -December 31,2013

Prepare entry *B - December 31,2014

Prepare entry *B - December 31,2015

List of accounts are

No entry required

Amortization expense

Bonds Payable

Discount on Bonds payable

Gain on retirementof bonds

Goodwill

Interest expense

Interest income

Investment in bonds

Investment in Hamilton

Loss on retirement of bonds

Premium on bonds payable

On January 1, 2011, Hamilton sold $1,500,000 in 10-year bonds to the public at 105. The bonds had a cash interest rate of 8 percent payable every December 31. Cairns acquired 45 percent of these bonds at 96 percent of face value on January 1, 2013. Both companies utilize the straight-line method of amortization.

Solution

Book value of bonds payable on January 1,2013 Book Value as on January 1, 2011 (1500000*1.05) 1575000 Less Amorization in 2011 & 2012 -15000 Book value of bonds payable on January 1,2013 1560000 Book Value of 45% bonds Payable (intra entity portion)Jan. 1 ,2013 702000 Gain on retirement of bonds as on Jan.1,2013 Book Value of Liability 702000 Purchase price (1500000*45%*96%) 648000 Gain on retirement of bonds as on Jan.1,2013 54000 Book value of bonds payable on January 1,2013 1560000 Less Amorization in 2013 -7500 Book value of bonds payable on Dec.31,2013 1552500 Book Value of 45% bonds Payable (intra entity portion)Jan. 1 ,2013 698625 Book Value of investment as on Dec. 31,2013 Book Value of investment as onJan. 1,2013 675000 Less Amorization in 2013 -3375 Book Value of investment as on Dec. 31,2013 671625 Intra entiy interest balance for 2013\' Interest Expense; Cash payment 54000 Less Amorization in 2013 -3375 Intra entiy interest balance for 2013\' 50625 Interest Income; Cash Collection 54000 Amortisaton of Discount 7500 Intra entiyInterest Income;for 2013\' 61500 Bonds Payable 675000 premiumon Bonds payable 16125 Interest Income 61500            Investment in Bonds 671625           Interest Expense 50625           Gain on retirement of Bonds 54000