E81 Bond Sale from Parent to Subsidiary Effective Interest M

E8-1 Bond Sale from Parent to Subsidiary (Effective Interest Method) LO 8-2 Lamar Corporation owns 60 percent of Humbolt Corporation\'s voting shares. On January 1, 20X2, Lamar Corporation sold $200,000 par value, 8 percent first mortgage bonds to Humbolt for $204,000. The bonds mature in 10 years and pay interest semiannually on January 1 and July 1. Required a. Prepare the joumal entries for 20x2 for Humbolt related to its ownership of Lamar\'s bonds. (Do not round your intermediate caluations. Round your final answers to nearest whole dollar.) Date General Journal Debit Credit January 1, 20X2 Investment in Lamar Corporation bonds 204,000 Cash 204,000 July 1, 20X2 Cash 8,000 Interest income 7,877 %) Investment in Lamar Corporation bonds 123+61 December 31. Interest receivable 8,000+-1 20X2 Interest income 7,872+41 Investment in Lamar Corporation bonds 128+-1 b. Prepare the jourmal entries for 20X2 for Lamar related to the bonds. (Do not round your intermediate calculations. Round your final answers to nearest whole dollar.) 7/5/2018, 3:40 PM ment Print View http://ezto.mheducation.com/hm.tpx?todo-printviewSingle No Date General Journal Debit Credit January 1, 20x2 Cash 204,000 Bonds payable Bond premium 200,000 4,000 July 1, 20X2 Interest expense 7,87741 Bond premium 123+ Cash 8,000+1 Interest expense 7,872 20X2 Bond premium 128+I Interest payable 8.000%)

Solution

Assuming Straight Line Method is Used to amortize Premium on Issue of Bonds Answer a. Journal Entry S. no. Date Particulars Dr. Amt. Cr. Amt. 1 Jan 1, 20X2 Investment in Lamar Corporation    204,000.00    Cash    204,000.00 2 Jul 1, 20X2 Cash        8,000.00 $200,000 x 8% X 6/12    Interest Income        7,800.00 $8,000 - $200    Investment in Lamar Corporation            200.00 $4,000 / 20 3 Dec 31, 20X2 Interest Receivable        8,000.00 $200,000 x 8% X 6/12    Interest Income        7,800.00 $8,000 - $200    Investment in Lamar Corporation            200.00 $4,000 / 20 Answer b. Journal Entry S. no. Date Particulars Dr. Amt. Cr. Amt. 1 Jan 1, 20X2 Cash    204,000.00    Bonds Payable    200,000.00    Bond Premium        4,000.00 2 Jul 1, 20X2 Interest Expense        7,800.00 $8,000 - $200 Bond Premium            200.00 $4,000 / 20    Cash        8,000.00 $200,000 x 8% X 6/12 3 Dec 31, 20X2 Interest Expense        7,800.00 $8,000 - $200 Bond Premium            200.00 $4,000 / 20    Interest Payable        8,000.00 $200,000 x 8% X 6/12 Answer c. Journal Entry S. no. Date Particulars Dr. Amt. Cr. Amt. 1 Dec 31, 20X2 Bonds Payable    200,000.00 Bond Premium        3,600.00 $4,000 - ($200 + $200) Interest Income      15,600.00 $ 7,800 + $7,800    Investment in Lamar Corporation    203,600.00 $204,000 - ($200 + $200)    Interest Expense      15,600.00 $ 7,800 + $7,800 2 Dec 31, 20X2 Interest Payable        8,000.00     Interest Receivable        8,000.00