Problem: Stallion Corporation sold $200,000 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.
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General Journal
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Debit
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Credit
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Interest Receivable
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12,000
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Interest Income
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11,400
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Investment in Stallion Corporation Bonds
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600
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Pony Corporation owns 65 percent of the voting stock of Stallion Corporation, and consolidated statements are prepared on December 31, 20X7.
Required:
Question 1: What was the original purchase price of the bonds to Pony Corporation?
Question 2: What is the balance In Pony's bond investment account on December 31, 20X7?
Question 3: Prepare the worksheet elimination entry or entries needed to remove the effects of the Intercompany owner bonds in preparing consolidated financial statements for 20X7.
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