Use the following information to answer the question(s) below.

Plenty Corporation issued six thousand, $1,000 par, 6% bonds on January 1, 2012, at par. Interest is paid on January 1 and July 1 of each year; the bonds mature on January 1, 2017. On January 2, 2014, Scrawn Corporation, a 75%-owned subsidiary of Plenty, purchased 3,000 of the bonds on the open market at 102.50. Plenty's separate net income for 2014 included the annual interest expense for all 3,000 bonds. Scrawn's separate net income for 2014 was $400,000, which included the bond interest received on July 1 as well as the accrual of bond interest revenue earned on December 31. Both companies use straight-line amortization of bond discounts/premiums.

-Using the original information,the elimination entries on the consolidation working papers prepared on December 31,2014 included at least

Question

Use the following information to answer the question(s) below.

Plenty Corporation issued six thousand, $1,000 par, 6% bonds on January 1, 2012, at par. Interest is paid on January 1 and July 1 of each year; the bonds mature on January 1, 2017. On January 2, 2014, Scrawn Corporation, a 75%-owned subsidiary of Plenty, purchased 3,000 of the bonds on the open market at 102.50. Plenty's separate net income for 2014 included the annual interest expense for all 3,000 bonds. Scrawn's separate net income for 2014 was $400,000, which included the bond interest received on July 1 as well as the accrual of bond interest revenue earned on December 31. Both companies use straight-line amortization of bond discounts/premiums.

-Using the original information,the elimination entries on the consolidation working papers prepared on December 31,2014 included at least

Quizplus · Accepted Answer

The elimination entries are made to remove any intercompany transactions between the parent company and the subsidiary. As per the information, the parent company owns 80% of the subsidiary's bonds. Hence, the interest paid by the subsidiary on these bonds is received by the parent company as an investment income.

Therefore, to eliminate the intercompany interest income and expense, the following entries would be made on the consolidation working papers: 
- Credit Bond Interest Expense for $180,000 (related to the interest expense incurred by the subsidiary)
- Debit Bond Interest Payable for $90,000 (to eliminate the amount paid by the subsidiary to the parent company)
- Debit Investment in Bonds for $90,000 (to eliminate the intercompany interest income received by the parent company)

Hence, based on the given options, the best choice is B - credit to Bond Interest Expense for $180,000 and a debit to Bond Interest Payable for $90,000.

Use the Following Information to Answer the Question(s) Below