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Question

Pepper Enterprises owns 95 percent of Salt Corporation. On January 1, 20X1, Salt issued $210,000 of five-year

bonds at 115. Annual interest of 12 percent is paid semiannually on January 1 and July 1. Pepper purchased $110,000 of the bonds on August 31, 20X3, at par value. The following balances are taken from the separate 20X3 financial statements of the two companies:

 

Note: Assume using straight-line amortization of bond discount or premium.

 

 Pepper Enterprises Salt Corporation

Investment in Salt Corporation Bonds$115,700    

Interest Income 4,550   

Interest Receivable 6,600     Bonds Payable $210,000

 Bond Premium    14,100 

Interest Expense    18,900 

Interest Payable    13,200 


Required:

a. Compute the amount of interest expense that should be reported in the consolidated income statement for 20X3. (Do not round intermediate calculations. Round your final answer to nearest whole dollar.)

 





b. Compute the gain or loss on constructive bond retirement that should be reported in the 20X3 consolidated income statement. (Do not round intermediate calculations. Round your final answer to nearest whole dollar.)






c. Prepare the consolidation worksheet consolidation entry or entries as of December 31, 20X3, to remove the effects of the intercorporate bond ownership. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Round your final answers to nearest whole dollar.)

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