Bond Sale from Parent to Subsidiary (Effective Interest Method)
Lamar Corporation owns 60 percent of Humbolt Corporation’s voting shares. On January 1, 20X2, Lamar Corporation sold $150,000 par value, 6 percent first mortgage bonds to Humbolt for $156,000. The bonds mature in 10 years and pay interest semiannually on January 1 and July 1.
Required
a. Prepare the journal entries for 20X2 for Humbolt related to its ownership of Lamar’s bonds.
b. Prepare the journal entries for 20X2 for Lamar related to the bonds.
c. Prepare the worksheet elimination entries needed on December 31, 20X2, to remove the effects of the intercorporate ownership of bonds.