Question

Par corporation holds 60 percent of short publishing company's voting shares. Par issued 000 of 10 percent (paid semiannually) bonds with a 10-year maturity on January 1, 20x2. On January 1, 20x8, Short purchased 100,000 of the Par bonds for 106,000. Partial balances for the two companies on December 31, 20x8, are as follows: Par Corporation: Investment in Short Publishing Company Stock: 141,000; Short Publishing Company: Investment in Par Corporation Bonds: 104,676; Bonds Payable: 500,000; Discount on Bonds Payable: 21,289; Interest Expense: 55,626; Interest Income: 25,000; Interest Payable: 5,000; Interest Receivable: ????. Required: Prepare the worksheet consolidation entry or entries needed on December 31, 20x8, to remove the effects of the intercorporate bond ownership in preparing consolidated financial statements.

Answer 1

To remove the effects of intercorporate bond ownership for consolidated financial statements, information on carrying amount, amortization of bond premium or discount, and interest receivable is needed, which is not provided in the question.

Step-by-step explanation:

When creating consolidated financial statements, it's essential to remove the effects of intercorporate bond ownership. Par Corporation holds a majority stake in Short Publishing Company and has issued bonds which Short subsequently purchased. The acquisition of Par Corporation bonds by Short Publishing leads to both interest income for Short Publishing and interest expense for Par Corporation that would offset each other in the consolidated statements since they relate to an internal group transaction.

Unfortunately, without further details about the carrying amount of the bonds, the amortized cost, and additional financial data from Par Corporation, providing an accurate and detailed consolidation worksheet entry is not possible. It is essential to determine the carrying amount of Par Corporation's bonds on Short's books and the portion of the bond premium or discount that should be amortized, as well as the interest receivable by Short Publishing to prepare the necessary consolidation entries.