Popcorn Corporation owns 90% of the outstanding voting common stock of Salty Corporation. On January 1, 2009, Salty issued $1,000,000 face amount of 12%, $1,000 bonds payable at 119.20

The bonds pay interest on January 1 and July 1 of each year and mature on January 1, 2017. On July 2, 2014, Popcorn purchased all of the outstanding bonds at a price of 107.50. Both companies use straight-line amortization.
Required:
1. Prepare the journal entries for July 1, 2014 through December 31, 2014 for Popcorn Corporation.
2. Prepare the journal entries for July 1, 2014 through December 31, 2014 for Salty Corporation.
3. Prepare the elimination entries necessary on the consolidating working papers for the year ended December 31, 2014.
What will be an ideal response?

Requirement 1
July 2, 2014:
Bond investment 1,075,000
Cash 1,075,000

December 31, 2014:
Interest receivable 60,000
Interest revenue 60,000
($1,000,000 × 12% × 1/2)

Interest revenue 15,000
Bond investment 15,000
($75,000/5)

Requirement 2
July 1, 2014:
Interest expense 60,000
Cash 60,000

Premium on bonds payable 12,000
Interest expense 12,000

December 31, 2014:
Interest receivable 60,000
Interest revenue 60,000
($1,000,000 × 12% × 1/2)

Premium on bonds payable 12,000
Interest expense 12,000

Requirement 3:
December 31, 2014:
Bonds payable 1,000,000
Premium on bonds payable 48,000
Loss on retirement of bonds 12,000
Bond investment 1,060,000
Bond investment:($1,075,000 - $15,000)

Loss on retirement of bonds 3,000
Interest revenue 45,000
Interest expense 48,000

Interest payable 60,000
Interest receivable 60,000

July 2, 2014
Paid $1,075,000
Book value of bonds 1,060,000 [$1,000,000 + ($12,000 × 5)]
Loss on retirement $15,000