Series Corporation issued $500,000 par value, 10-year bonds at 104 on January 1, 20X1, which Independent Corporation purchased. On January 1, 20X5, Playoff Corporation purchased $200,000 of Series bonds from Independent for $196,700. The bonds pay 9 percent interest annually on December 31. The preparation of consolidated financial statements for Series and Playoff at December 31, 20X7, required the following consolidation entry:

Required

With the information given, answer each of the following questions. Show how you derived your answer.

a. Is Series or Playoff the parent company? How do you know?

b. What percentage of the subsidiary’s ownership does the parent hold?

c. If 20X7 consolidated net income of $70,000 would have been reported without the preceding consolidation entry, what amount will actually be reported?

d. Will income to the noncontrolling interest reported in 20X7 increase or decrease as a result of the preceding consolidation entry? By what amount?

e. Prepare the consolidation entry needed to remove the effects of the intercorporate bond ownership in completing a three-part consolidation worksheet at December 31, 20X8.

Transcribed Image Text:

Bonds Payable Premium on Bonds Payable Interest Income Investment in Series Corporation Bonds Interest Expense Retained Earnings, January 1 Noncontrolling Interest 200,000 3,105 18,520 198,130 17,121 4,780 1,594