Qusetion: Wood Corporation owns 1 percent of Carter Company's voting shares. On January 1, 20X3, Carter sold bonds with a par value of $705,000 at 98. Wood purchased $470,000 par value of the bonds; the remainder was sold to nonaffiliates. The bonds mature in five years and pay an annual interest rate of 8 percent. Interest is paid semiannually on January 1 and July 1.
a. What amount of interest expense should be reported in the 20X4 consolidated income statement?
b. Prepare the journal entries Wood recorded during 20X4 with regard to its investment in Carter bonds
- Record the interest received on the bonds.
- Record the interest received on the bonds.
- Record the interest receivable on the bonds.
c. Prepare all worksheet consolidation entries needed to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements for 20X4.
- Record the entry to eliminate the effects of the intercompany ownership in the bonds.
- Record the entry to eliminate the effects of the intercompany ownership interest receivables/payables