Several years ago Cameron’s Inc., sold $1,200,000 in bonds to the public. The an

Question

Several years ago Cameron’s Inc., sold $1,200,000 in bonds to the public. The annual cash interest of 4 % ($48,000) was to be paid on this debt. The bonds were issued at a discount to yield 6.5 percent. At the beginning of 2016, Blue Mountain Corporation (a wholly owned subsidiary of Cameron’s) purchased $150,000 of these bonds on the open market for $159,892.26, a priced based on an effective interest rate of 3.5 percent. The bond liability had a book value on that date of $887,026. Assume Cameron’s uses the equity method to account internally for its investment in Blue Mountain. What consolidation entry would be required for these bonds on:

December 31, 2018?

Explanation / Answer

Answer:

Answer:Entry B

Bonds Payable A/C Dr. $182936.511

Interest Income A/C Dr. $5596.229

           To Profit Retirement of Debt A/C                         $17512.9

           To Investment in Bonds A/C                                $159488.5

            To Interest Expense A/C                                   $11531.34

Profit on repurchase of bond:

Interest balances for 2016:

Investment balance, December 31, 2016:

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