Reference no: EM132687078

Day Corporation owned 100% of the voting common stock of Saint, Inc., and Day accounts for this investment using the equity method. On January 1, 2018, Saint purchased $100,000 of Day Corporation's 9% bonds for $103,993, a price that implied an 8% effective yield. On January 1, 2018, those same bonds had a net book value of $92,608 on Day's books, an amount that implied an 11% effective interest rate. The bonds pay interest annually on December 31. Both companies use the effective rate method. The following table shows the computed interest for both companies, for the years 2018 and 2019, using the effective rate method:

2018

Interest Revenue earned by Saint on its Bond Investment    $ 8,319             $ 8,265

2019

Interest Expense incurred by Day on its Bonds Payable           10,187              10,317

Required:

Problem a) Prepare consolidation Entry B at December 31, 2018 in relation to these bonds.

Problem b) Prepare consolidation Entry B at December 31, 2019 in relation to these bonds.