Reference no: EM132734173
Question - Day Corporation owned 100% of the voting common stock of Saint, Inc., and Day accounts for this investment using the equity method. On January 1, 2018, Saint purchased $100,000 of Day Corporation's 9% bonds for $103,993, a price that implied an 8% effective yield. On January 1, 2018, those same bonds had a net book value of $92,608 on Day's books, an amount that implied an 11% effective interest rate. The bonds pay interest annually on December 31. Both companies use the effective rate method. The following table shows the computed interest for both companies, for the years 2018 and 2019, using the effective rate method:
Interest Revenue earned by Saint on its Bond Investment
2018 - $8,319
2019 - $8,265
Interest Expense incurred by Day on its Bonds Payable
2018 - 10,187
2019 - 10,317
Required -
a) Prepare consolidation Entry B at December 31, 2018 in relation to these bonds.
b) Prepare consolidation Entry B at December 31, 2019 in relation to these bonds.
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