Stallion Corporation sold $100,000 par value, 10-year first mortgage bonds to Pony Corporation on January 1, 20X5. The bonds, which bear a nominal interest rate of 12 percent, pay interest semiannually on January 1 and July 1. The entry to record interest income by Pony Corporation on December 31, 20X7, was as follows:
Note: Assume using straight-line amortization of bond discount or premium.
General Journal Debit Credit
Interest Receivable 6,000
Interest Income 5,750
Investment in Stallion Corporation Bonds 250
Pony Corporation owns 65 percent of the voting stock of Stallion Corporation, and consolidated statements are prepared on December 31, 20X7.
Required:
(a) What was the original purchase price of the bonds to Pony Corporation?
(b) What is the balance in Pony’s bond investment account on December 31, 20X7?
(c) Prepare the worksheet consolidation 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.)
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Stallion Corporation sold $100,000 par value, 10-year first mortgage bonds to Pony Corporation on Ja...
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