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intercorporate bond holdings and other transfers straight line method on january 1 2 733592

Intercorporate Bond Holdings and Other Transfers (Straight Line Method)

On January 1, 20X5, Pond Corporation purchased 75 percent of Skate Company’s stock at underlying book value. At that date, the fair value of the noncontrolling interest was equal to 25 percent of Skate’s book value. The balance sheets for Pond and Skate at January 1, 20X8, and December 31, 20X8, and income statements for 20X8 were reported as follows:

20X8 Balance Sheets

Pond Corporation

Skate Company

January 1

December 31

January 1

December 31

Cash

$ 57,600

$ 53,100

$ 10,000

$ 47,000

Accounts Receivable

130,000

176,000

60,000

65,000

Interest & Other Receivables

40,000

45,000

8,000

10,000

Inventory

100,000

140,000

50,000

50,000

Land

50,000

50,000

22,000

22,000

Buildings & Equipment

400,000

400,000

240,000

240,000

Accumulated Depreciation

(150,000)

(185,000)

(70,000)

(94,000)

Investment in Skate Company:

Stock

122,100

139,050

Bonds

42,800

42,400

Investment in Tin Co. Bonds

135,000

134,000

Total Assets

$927,250

$994,550

$320,000

$340,000

Accounts Payable

$ 60,000

$ 65,000

$ 16,500

$ 11,000

Interest & Other Payables

40,000

45,000

7,000

12,000

Bonds Payable

300,000

300,000

100,000

100,000

Bond Discount

(3,500)

(3,000)

Common Stock

150,000

150,000

30,000

30,000

Additional Paid In Capital

155,000

155,000

20,000

20,000

Retained Earnings

222,500

279,550

150,000

170,000

Total Liabilities & Equities

$927,500

$994,550

$320,000

$340,000

20X8 Income Statements

Pond Corporation

Skate Company

Sales

$450,000

$250,000

Income from Skate Co.

24,450

Interest Income

18,500

Total Revenue

$492,950

$250,000

Cost of Goods Sold

$285,000

$136,000

Other Operating Expenses

$ 50,000

40,000

Depreciation Expense

35,000

24,000

Interest Expense

24,000

10,500

Miscellaneous Expenses

$ 11,900

$405,900

$ 9,500

$220,000

Net Income

$ 87,050

$ 30,000

Additional Information

1. Pond sold a building to Skate for $65,000 on December 31, 20X7. Pond had purchased the building for $125,000 and was depreciating it on a straight line basis over 25 years. At the time of sale, Pond reported accumulated depreciation of $75,000 and a remaining life of 10 years. Assume Pond uses the fully adjusted equity method.

2. On July 1, 20X6, Skate sold land that it had purchased for $22,000 to Pond for $35,000. Pond is planning to build a new warehouse on the property prior to the end of 20X9.

3. Skate issued $100,000, par value 10 year bonds with a coupon rate of 10 percent on January 1, 20X5, at $95,000. On December 31, 20X7, Pond purchased $40,000 par value of Skate’s bonds for $42,800. Both companies amortize bond premiums and discounts on a straight line basis. Interest payments are made on July 1 and January 1.

4. Pond and Skate paid dividends of $30,000 and $10,000, respectively, in 20X8.

Required

a. Prepare all elimination entries needed at December 31, 20X8, to complete a three part consolidation worksheet.

b. Prepare a three part worksheet for 20X8 in good form.

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