82 Nettle Corporation sold $140,000 par value, 10-year first mortgage bonds to T

Question

82 Nettle Corporation sold $140,000 par value, 10-year first mortgage bonds to Timberline Corporation on January 1, 20X5. The bonds, which bear a nominal interest rate of 10 percent, pay interest semiannually on January 1 and July 1. The entry to record interest income by Timberline Corporation on December 31, 20X7, was as follows:

Timberline Corporation owns 65 percent of the voting stock of Nettle Corporation, and consolidated statements are prepared on December 31, 20X7.

What was the original purchase price of the bonds to Timberline Corporation?

     

What is the balance in Timberline’s bond investment account on December 31, 20X7?

     

Prepare the worksheet elimination entry or entries needed to remove the effects of the intercompany ownership of bonds in preparing consolidated financial statements for 20X7. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

     

82 Nettle Corporation sold $140,000 par value, 10-year first mortgage bonds to Timberline Corporation on January 1, 20X5. The bonds, which bear a nominal interest rate of 10 percent, pay interest semiannually on January 1 and July 1. The entry to record interest income by Timberline Corporation on December 31, 20X7, was as follows:

Note: Assume using straight-line amortization of bond discount or premium.

Explanation / Answer

a. premium amortised semi annually as given= 350

per year premium amortisatin= 350*2= 700

since it is 10 year bond, total premium = 700*10= 7000

as face value of bond is 140000, original purchase price will be= 140000+7000= 147000

b. balance in investmnet in timberline's bond investment will be= 147000 - 700*2= 145600

c.

elimination entry:

Account Debit Credit working Investment in nettle corporation bonds- timberline 145600 bonds payable - Nettle 140000 premium on bonds payable - Nettle 5600 145600-140000 interest expense- Nettle 13300 6650*2 interest revenue- timberline 13300 interest receivable- timberline 7000 Interest payable- nettle 7000

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