Several years ago Abrams, Inc., sold $950,000 in bonds to the public. Annual cash interest of 8 percent ($76,000) was to be paid on this debt. The bonds were issued at a discount to yield 10 percent. At the beginning of 2012, Bierman Corporation (a wholly owned subsidiary of Abrams) purchased $190,000 of these bonds on the open market for $211,000, a price based on an effective interest rate of 6 percent. The bond liability had a book value on that date of $770,000. Assume Abrams uses the equity method to account internally for its investment in Bierman.

Several years ago Abrams, Inc., sold $950,000 in bonds to the public. Annual cash interest of 8 percent ($76,000) was to be paid on this debt. The bonds were issued at a discount to yield 10 percent. At the beginning of 2012, Bierman Corporation (a wholly owned subsidiary of Abrams) purchased $190,000 of these bonds on the open market for $211,000, a price based on an effective interest rate of 6 percent. The bond liability had a book value on that date of $770,000. Assume Abrams uses the equity method to account internally for its investment in Bierman.

 

a.	What consolidation entry would be required for these bonds on December 31, 2012? (Do not round intermediate calculations. Round your answers to the nearest dollar amount.)

 

Event	General Journal	Debit	Credit
Entry B	Bonds Payable
	Interest Income
	Loss on Retirement of Debt
	Investment in Bonds
	Interest Expense

 

b.	What consolidation entry would be required for these bonds on December 31, 2014? (Do not round intermediate calculations. Round your answers to the nearest dollar amount.)

 

Event	General Journal	Debit	Credit
Entry *B	Bonds Payable
	Interest Income
	Investment in Bierman
	Investment in Bonds
	Interest Expense

 

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