Lamar Corporation owns 60 percent of Humbolt Corporation’s voting shares. On Jan
ID: 2602145 • Letter: L
Question
Lamar Corporation owns 60 percent of Humbolt Corporation’s voting shares. On January 1, 20X2, Lamar Corporation sold $160,000 par value, 10 percent first mortgage bonds to Humbolt for $166,000. The bonds mature in 10 years and pay interest semiannually on January 1 and July 1.
Prepare the journal entries for 20X2 for Humbolt related to its ownership of Lamar’s bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your market rate of interest to 3 decimals. For example, .0547523 should be rounded to 5.475%)
Prepare the journal entries for 20X2 for Lamar related to the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your market rate of interest to 3 decimals. For example, .0547523 should be rounded to 5.475%)
Prepare the worksheet consolidation entries needed on December 31, 20X2, to remove the effects of the intercorporate ownership of bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your market rate of interest to 3 decimals. For example, .0547523 should be rounded to 5.475%)
Lamar Corporation owns 60 percent of Humbolt Corporation’s voting shares. On January 1, 20X2, Lamar Corporation sold $160,000 par value, 10 percent first mortgage bonds to Humbolt for $166,000. The bonds mature in 10 years and pay interest semiannually on January 1 and July 1.
Explanation / Answer
a.
Journal entries recorded by Humbolt Corporation:
January 1, 20X2
Investment in Lamar Corporation Bonds
166,000
Cash
166,000
July 1, 20X2
Cash
8,000
Interest Income
7,700
Investment in Lamar Corporation Bonds
300
December 31, 20X2
Interest Receivable
8,000
Interest Income
7,700
Investment in Lamar Corporation Bonds
300
b.
Journal entries recorded by Lamar Corporation:
January 1, 20X2
Cash
166,000
Bonds Payable
160,000
Bond Premium
6,000
July 1, 20X2
Interest Expense
7,700
Bond Premium
300
Cash
8,000
December 31, 20X2
Interest Expense
7,700
Bond Premium
300
Interest Payable
8,000
c.
Eliminating entries, December 31, 20X2:
E(1)
Bonds payable
160,000
Premium on Bonds Payable
5,400
Interest income
15,400
Investment in Lamar Corporation Bonds
165,400
Interest expense
15,400
Eliminate intercorporate bond holdings.
E(2)
Interest payable
8,000
Interest receivable
8,000
Eliminate intercompany receivable/payable.
a.
Journal entries recorded by Humbolt Corporation:
January 1, 20X2
Investment in Lamar Corporation Bonds
166,000
Cash
166,000
July 1, 20X2
Cash
8,000
Interest Income
7,700
Investment in Lamar Corporation Bonds
300
December 31, 20X2
Interest Receivable
8,000
Interest Income
7,700
Investment in Lamar Corporation Bonds
300
b.
Journal entries recorded by Lamar Corporation:
January 1, 20X2
Cash
166,000
Bonds Payable
160,000
Bond Premium
6,000
July 1, 20X2
Interest Expense
7,700
Bond Premium
300
Cash
8,000
December 31, 20X2
Interest Expense
7,700
Bond Premium
300
Interest Payable
8,000
c.
Eliminating entries, December 31, 20X2:
E(1)
Bonds payable
160,000
Premium on Bonds Payable
5,400
Interest income
15,400
Investment in Lamar Corporation Bonds
165,400
Interest expense
15,400
Eliminate intercorporate bond holdings.
E(2)
Interest payable
8,000
Interest receivable
8,000
Eliminate intercompany receivable/payable.
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