Problem $8-16$A $($Algo$)$ Direct Sale of Bonds to Parent $($Straight$-$Line Method$)$ LO $8-2$

On January $1,20$X$1,$ Prize Corporation paid Morton Advertising $$119,700$ to acquire $70$ percent of Statue Company$$s stock. Prize also paid $$45,000$ to acquire $$50,000$ par value $8$ percent, $10-$year bonds directly from Statue on that date. This purchase represented one$-$half of the bonds that were originally issued. Interest payments are made on January $1$ and July $1.$ The fair value of the noncontrolling interest at January $1,20$X$1,$ was $$51,300,$ and book value of Statue$$s net assets was $$115,000.$ The book values and fair values of Statue$$s assets and liabilities were equal except for buildings and equipment, which had a fair value $$56,000$ greater than book value and a remaining economic life of $14$ years at January $1,20$X$1.$

The trial balances for the two companies as of December $31,20$X$3,$ are as follows:

Item Prize Corporation Statue Company

Debit Credit Debit Credit

Cash and Current Receivables $ $31,300$ $ $47,000$

Inventory $177,00084,000$

Land, Buildings, and Equipment $($net$)330,000182,000$

Investment in Statue Bonds $46,500$

Investment in Statue Stock $154,000$

Discount on Bonds Payable $7,000$

Operating Expenses $183,500142,000$

Interest Expense $26,0009,000$

Dividends Declared $46,0009,000$

Current Liabilities $ $40,300$ $ $36,000$

Bonds Payable $288,000100,000$

Common Stock $94,00044,000$

Retained Earnings $225,80094,000$

Sales $306,000206,000$

Interest Income $4,500$

Income from Statue Company $35,700$

Total $ $994,300$ $ $994,300$ $ $480,000$ $ $480,000$

On July $1,20$X$2,$ Statue sold land that it had purchased for $$17,000$ to Prize for $$25,000.$ Prize continues to hold the land at December $31,20$X$3.$ Assume Prize Corporation uses the fully adjusted equity method.

Required:

Prepare the journal entries for $20$X$3$ on Prize$$s books related to its investment in Statue$$s stock and bonds.

Prepare the entries for $20$X$3$ on Statue$$s books related to its bond issue.

Prepare consolidation entries needed to complete a worksheet for $20$X$3.$

Prepare a three$-$part consolidation worksheet for $20$X$3.\backslash$table$[[$PRIZE CORPORATION AND SUBSIDIARY$],[$Consolidated Financial Statement Worksheet$],[$December $31,20\backslash$times $3],[,$Prize Corp.,$\backslash$table$[[$Statue$],[$Company$]],$Consolidation Entries,Consolidatec$],[,$DR$,$CR$],[$Income Statement$],[$Sales$],[$Interest Income$],[$Less: Other Expenses$],[$Less: Interest Expense$],[$Income from Statue Company$],[$Consolidated Net Income,$0,0,0,0,0],[$NCl in Net Income$],[$Controlling Interest in Net Income,$0,0,0,0,0],[$Statement of Retained Earnings$],[$Beginning Balance$],[$Net Income$],[$Less: Dividends Declared$],[$Ending Balance,$0,0,0,0,0],[$Balance Sheet$],[$Assets$],[$Cash &$.$ Current Receivables$],[$Inventory$],[$Land$,$ Buildings, & Equipment $($net$)],[$Investment in Statue Stock$],[$Investment in Statue Bonds$],[$Total Assets,$0,0,0,0,0],[$Liabilities & Equity$],[$Current Liabilities$],[$Bonds Payable$],[$Discount on Bonds Payable$],[$Common Stock,,,,,$],[$Retained Earnings,,,,,$],[$NCl in NA of Statue Company,,,,,$],[$Total Liabilities & Equity,$0,0,0,0,0]]$