Assume the same facts as in Exercise, but in addition, assume that Saratoga is itself in need of cash. It discounts the note received from Windsor at First Bank on July 1, 2013, at a discount rate of 8% per annum.
In Exercise, Saratoga Company owns 80% of the outstanding common stock of Windsor Company. On May 1, 2013, Windsor Company arranges a 1-year, $50,000 loan from Saratoga Company. The loan agreement specifies that interest will accrue at the rate of 6% per annum and that all interest will be paid on the maturity date of the loan. The financial reporting period ends on December 31, 2013, and the note originating from the loan remains outstanding.
1. Prepare the entries that both companies would have made on their separate books, including interest accruals.
2. Prepare the eliminations, in entry form, that will be made on a consolidated worksheet prepared as of December 31, 2013.