accounting-Fargus Corporation owned 51% of the voting common stock

QUESTION

Fargus Corporation owned 51% of the voting common stock of Manatee, Inc. The parent’s interest was acquired several years ago on the date that the subsidiary was formed. Consequently, no goodwill or other allocation was recorded in connection with the purchase price.On January 1, 2005, Manatee sold $1,400,000 in ten-year bonds to the public at 108. The bonds pay a cash, or stated, interest rate of 10% payable every December 31. Fargus acquired 40% of these bonds on January 1, 2006, at an effective interest rate of 11 percent.Required:(a)(What consolidation journal entry would have been recorded in connection with these intercompany bonds on December 31, 2006?

ANSWER:

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