Sabu is a 65%-owned subsidiary of Peerless. On January 1, 2012, Sabu issued $1,000,000 of $1,000 face amount 8% bonds at $980 per bond

The bonds have interest payments on December 31 of each year and mature on January 1, 2017. On January 1, 2013, Peerless purchased all 1,000 bonds on the open market for $1,010 per bond. Straight-line amortization is used by both companies.
Required: With respect to the bonds, use General Journal format to:
1. Record the journal entries on Sabu's books made from 2012 to 2017.
2. Record the journal entries on Peerless' books made from 2012 to 2017.
3. Record the elimination entries for the consolidation working papers for 2012 through 2017.
What will be an ideal response?

Requirement 1

Date Account Name Debit Credit
Sabu's Books
1/1/12 Cash 980,000
Bond Discount 20,000
Bonds Payable 1,000,000

12/31/12 Interest Expense 80,000
Cash 80,000
Interest Expense 4,000
Bond Discount 4,000

12/31/13 Same as entry for prior year end

12/31/14 Same as entry for prior year end

12/31/15 Same as entry for prior year end

12/31/16 Same as entry for prior year end

1/1/17 Bonds Payable 1,000,000
Cash 1,000,000

Requirement 2
Peerless Books
2012 — No entry

1/1/13 Investment in Bonds 1,010,000
Cash 1,010,000
12/31/13 Cash 80,000
Interest Income 80,000
Interest Income 2,500
Investment in Bonds 2,500

12/31/14 Same as entry for prior year end

12/31/15 Same as entry for prior year end

12/31/16 Same as entry for prior year end

1/1/17 Cash 1,000,000
Investment in Bonds 1,000,000

Requirement 3
2012 — No entry required — bonds owned by third party

12/31/13 Bonds Payable 1,000,000
Interest Income 77,500
Loss on Bond Retirement 26,000
Investment in Bonds 1,007,500
Interest Expense 84,000
Bond Discount 12,000

12/31/14 Bonds Payable 1,000,000
Interest Income 77,500
Investment in Sabu 12,675
Noncontrolling interest 6,825
Investment in Bonds 1,005,000
Interest Expense 84,000
Bond Discount 8,000

12/31/15 Bonds Payable 1,000,000
Interest Income 77,500
Investment in Sabu 8,450
Noncontrolling interest 4,550
Investment in Bonds 1,002,500
Interest Expense 84,000
Bond Discount 4,000

12/31/16 Bonds Payable 1,000,000
Interest Income 77,500
Investment in Sabu 4,225
Noncontrolling interest 2,275
Investment in Bonds 1,000,000
Interest Expense 84,000

12/31/17 No entry required