Reference no: EM132430171

Question - Plug Corporation purchased $114,000 par value bonds of its subsidiary, Spark Company, on December 31, 20X5, from Lemon Corporation. The 10-year bonds bear a 9 percent coupon rate, and Spark originally sold them on January 1, 20X3, to Lemon. Interest is paid annually on December 31. Plug owns 85 percent of the stock of Spark.

In preparing the consolidation worksheet at December 31, 20X6, Plug's controller made the following entry to eliminate the effects of the inter-corporate bond ownership:

Consolidation Worksheet Entries	Debit	Credit
Bonds Payable	114,000
Interest Income	9,860
Investment in Spark Company Stock	5,355
NCI in NA of Spark Company	945
Investment in Spark Company Bonds		116,400
Discount on Bonds Payable		3,000
Interest Expense		10,760

Required: With the Information given, answer the following questions:

a. What amount did Plug pay when it purchased Spark's bonds?

b. Prepare the journal entry made by Spark in 20X6 to record Its Interest expense for the year.

c. Prepare the Journal entry made by Plug in 20X6 to record its interest income on the Spark bonds that it holds.

d. Prepare the consolidation entry to remove the effects of the inter-corporate bond ownership in completing a three-part consolidation worksheet at December 31, 20X5.

e. Spark reported net income of $70,000 and $90,000 for 20X5 and 20X6, respectively. Plug reported Income from its separate operations of $130,000 and $160,000 for 20X5 and 20X6, respectively. What amount of consolidated net income and income to the controlling interest will be reported in the consolidated income statements for 20X5 and 20X6?