Case Scenario:
On January 1, 1999, Kroll Corporation issued 10-year bonds at $500,000 par to unrelated parties. The bonds pay interest of $15,000 every June 30 and December 31. On December 31, 2002, Stine Corporation purchased all of Kroll's bonds in the open market at a $6,000 discount with the intent of holding them to maturity. Kroll is Stine's 80 percent owned subsidiary and was acquired at underlying book value. Stine uses the straight line method to amortize any premium or discount on bonds. On January 1, 2003, Kroll had common stock of $500,000, additional paid-in capital of $100,000, and retained earnings of $200,000. For the year 2003, Kroll reported net income of $100,000 and declared dividends of $10,000, payable January 6, 2004. There were no intercompany transactions or events other than indicated above.
Q1. Compute consolidated net income for 2003, assuming that Stine reported separate operating income of $240,000.
Q2. Compute the amount that should be reported on the December 31, 2003 consolidated balance sheet for noncontrolling interest.
Q3. Prepare all the elimination entries related to intercompany debt that would appear in a three-part workpaper to prepare consolidated financial statements for the year 2003.