Determining the Amount of Retirement Gain or Loss (Straight-Line Method) Online Enterprises owns 95 percent of Downlink Corporation. On January 1, 20X1, Downlink issued $200,000 of five-year bonds at 115. Annual interest of 12 percent is paid semiannually on January 1 and July 1. Online purchased $100,000 of the bonds on August 31, 20X3, at par value. The following balances are taken from the separate 20X3 financial statements of the two companies: Online Enterprises Downlink Corporation Investment in Downlink Corporation Bonds $105,700 Interest Income 4,000 Interest Receivable 6,000 Bonds Payable $200,000 Bond Premium 12,000 Interest Expense 18,000 Interest Payable 12,000 Required a. Compute the amount of interest expense that should be reported in the consolidated income statement for 20X3. b. Compute the gain or loss on constructive bond retirement that should be reported in the 20X3 consolidated income statement. c. Prepare the consolidation worksheet elimination entry or entries as of December 31, 20X3, to remove the effects of the intercorporate bond ownership.

Determining the Amount of Retirement Gain or Loss (Straight-Line Method) Online Enterprises owns 95 percent of Downlink Corporation. On January 1, 20X1, Downlink issued $200,000 of five-year bonds at...

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Determining the Amount of Retirement Gain or Loss (Straight-Line Method)

Online Enterprises owns 95 percent of Downlink Corporation. On January 1, 20X1, Downlink issued $200,000 of five-year bonds at 115. Annual interest of 12 percent is paid semiannually on January 1 and July 1. Online purchased $100,000 of the bonds on August 31, 20X3, at par value. The following balances are taken from the separate 20X3 financial statements of the two companies:

	Online Enterprises	Downlink Corporation
Investment in Downlink Corporation Bonds	$105,700
Interest Income	4,000
Interest Receivable	6,000
Bonds Payable		$200,000
Bond Premium		12,000
Interest Expense		18,000
Interest Payable		12,000

Required

a. Compute the amount of interest expense that should be reported in the consolidated income statement for 20X3.

b. Compute the gain or loss on constructive bond retirement that should be reported in the 20X3 consolidated income statement.

c. Prepare the consolidation worksheet elimination entry or entries as of December 31, 20X3, to remove the effects of the intercorporate bond ownership.

Answered Same Day Dec 25, 2021

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Robert answered on Dec 25 2021

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Determining the Amount of Retirement Gain or Loss (Straight-Line Method) Online Enterprises owns 95 percent of Downlink Corporation. On January 1, 20X1, Downlink issued $200,000 of five-year bonds at...

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