Reference no: EM133065100

Questions -

Q1. Peter Corporation acquired an 80% interest in Stern Corporation several years ago when the book values and fair values of Stern's assets and liabilities were equal. At the time of acquisition, the cost of the 80% interest was equal to 80% of the book value of Stern's net assets. Separate company income statements for Peter and Stern for the year ended December 31, 2014 are summarized as follows:

Peter Stern

Sales Revenue $1,000,000 $600,000

Investment income from Stern 85,000

Cost of Goods Sold (600,000) (300,000)

Expenses (200,000) (200,000)

Net Income $285,000 $100,000

During 2013, Peter sold merchandise that cost $120,000 to Stern for $180,000. Half of this merchandise remained in Stern's inventory at December 31, 2013. During 2014, Peter sold merchandise that cost $150,000 to Stern for $225,000. One-third of this merchandise remained in Stern's December 31, 2014 inventory.

Required - Prepare a consolidated income statement for Peter Corporation and Subsidiary for 2014?

Q2. Paka Corporation owns an 80% interest in Sandra Company. Paka acquired Sandra's bonds on January 2, 2014. The following information is from the adjusted trial balances at December 31, 2014, at which time the bonds have three years to maturity. The bonds have interest payment dates of January 1 and July 1. Straight-line amortization is used by both companies.

Paka Sandra

Investment in Sandra Bonds, $100,000 par 98,500

7% Bonds payable, $200,000 200,000

Bond premium 6,000

Interest expense 12,000

Interest receivable 7,000

Interest income 7,500

Interest payable 7,000

Required - Prepare the necessary consolidation working paper entries on December 31, 2014 with respect to the intercompany bonds.