Answer:
Eliminations and Adjustments:
(1) Interest Payable Dr $7,500
To Interest receivable $7,500
(Eliminate $7,500($150,000 * 10%/2) of intercompany interest receivable and payable)
(2) Interest income - Parent Dr $13,556
Bonds-payable subsidiary Dr $150,000
Retained Earnings. Dr $13,000
To Interest expense - Subsidiary $15,000
To Investment in Subsidiary bonds $161,556
(Eliminating interest and balance in investment bonds)
Annual adjustment to interest = $13,000/9 = $1,444
Interest income - Parent = $15,000 - $1,444 = $13,556
Investment in Subsidiary bonds = $163,000 - $1,444 = $161,556
Retained earnings = Purchase price of bonds less carrying value = $163,000 - $150,000 = $13,000
Explanation:
