Homework: Prepare Journal Entries and Consolidation Entries Related to an Affiliate's Debt
S Company issued $1,000,000 par value 10-year bonds at 102 on January 1, 20X5, which M Corporation purchased. The coupon rate on the bonds is 9 percent. Interest payments are made semiannually on July 1 and January 1. On Jan 1, 20X8, P Company purchased $500,000 par value of the bonds from M for $492,200. P owns 65 percent of S's voting shares.
Required:
a. What amount of gain or loss will be reported in S's 20X8 income statement on the retirement of bonds?
b. Will a gain or loss be reported in the 20X8 consolidated financial statements for P for the constructive retirement of bonds? What amount will be reported?
c. How much will P's purchase of the bonds change consolidated net income for 20X8?
d. Prepare the worksheet consolidating entry or entries needed to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements at December 31, 20X8.
e. Prepare the worksheet consolidating entry or entries needed to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements at December 31, 20X9.
Format your homework according to the give formatting requirements:
a. The answer must be double spaced, typed, using Times New Roman font (size 12), with one-inch margins on all sides.
b. The response also includes a cover page containing the title of the homework, the course title, the student's name, and the date. The cover page is not included in the required page length.
c. Also include a reference page. The references and Citations should follow APA format. The reference page is not included in the required page length.