P8-14A Consolidation Worksheet with Sale of Bonds to Subsidiary (Straight-Line Method) LO 8-2
Porter Company purchased 60 percent ownership of Service Corporation on January 1, 20X1, at underlying book value. At that date, the fair value of the noncontrolling interest was equal to 40 percent of Service’s book value. On January 1, 20X1, Porter sold $75,000 par value, 8 percent, five-year bonds directly to Service for $77,000 and the market interest rate was 7 percent. The bonds pay interest annually on December 31. Porter uses the fully adjusted equity method in accounting for its ownership of Service. On December 31, 20X2, the trial balances of the two companies are as follows:
Note: Assume using straight-line amortization of bond discount or premium.
Porter Company Service Corporation Item Debit Credit Debit Credit Cash & Accounts Receivable $ 89,200 $ 40,000 Inventory 137,000 65,000 Buildings & Equipment 505,000 300,000 Investment in Service Corporation Stock 103,800 Investment in Porter Company Bonds 76,200 Cost of Goods Sold 96,800 54,000 Depreciation Expense 20,000 10,000 Interest Expense 5,600 13,600 Dividends Declared 36,000 7,000 Accumulated Depreciation $ 157,000 $ 57,000 Accounts Payable 115,600 60,200 Bonds Payable 75,000 191,000 Bond Premium 1,200 Common Stock 187,000 87,000 Retained Earnings 217,000 37,000 Sales 207,000 128,000 Interest Income 5,600 Income from Service Corp. 33,600 Total $ 993,400 $ 993,400 $ 565,800 $ 565,800