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43.     On November 1, 2005, Phaser Corporation issued to the public $1,000,000 face amount of 9%, 10-year bonds maturing November 1, 2012, for $1,067,100, a yield rate of 8%. Interest on the bonds was payable annually beginning November 1, 2006. On October 31, 2006, Sedd Company, the 70%-owned subsidiary of Phaser, acquired in the open market $300,000 face amount of Phaser's outstanding 9% bonds for $282,723, a yield rate of 10%, plus accrued interest.
          a.      Prepare journal entries for Phaser Corporation on November 1, 2005, and October 31, 2006, related to the bonds. Omit explanations for the journal entries and disregard bond issue costs and income taxes.
          b.      Prepare a working paper elimination (in journal entry format) for Phaser Corporation and subsidiary on October 31, 2006 (the date Sedd Company acquired the Phaser Corporation bonds and the fiscal year end). Omit explanation and disregard income taxes.

44.     Purkle Corporation purchased merchandise from its 94%-owned subsidiary, Sterkel Company, at the subsidiary's normal gross margin rate of 25%. Purkle's accounting records for Fiscal Year 2006 show the following with respect to purchases from Sterkel:


Inventories, Jan. 1, 2006

$ 40,000



Add: Purchases




Goods available for sale




Less: Inventories, Dec. 31, 2006




Cost of goods sold


Prepare a working paper elimination (in journal entry format) for Purkle Corporation and subsidiary on December 31, 2006. Omit explanation and disregard income taxes.

     45.     On July 1, 2001, Sixty Company, the 90%-owned subsidiary of Pandle Corporation, issued to the public $100,000 face amount of 7% bonds (interest payable annually) due July 1, 2006, for $92,221, a yield rate of 9%. On June 30, 2003, when the carrying amount of the bonds was $94,938, Pandle acquired $40,000 face amount of the outstanding 7% bonds in the open market for $37,016, a yield rate of 10%.

          Prepare a working paper to show how the $959 intercompany gain realized by Sixty on June 30, 2003, will be recognized in the accounting records of Pandle Corporation and Sixty Company for the three years ending June 30, 2006. Use the following format:

Year Ending

June 30,

Pandle Corporation’s Intercompany Interest Revenue

Sixty Company’s Intercompany Interest Expense

Difference—Representing Recognition of Realized Gain











     46.     The working paper eliminations (in journal entry format) for Ponder Corporation and subsidiary for the fiscal year ended October 31, 2006, included the following:

Intercompany Liability under Capital Lease?Sunder



[($5,000 x 4.169865) – $5,000]




Unearned Intercompany Interest Revenue?Ponder



($25,000 – $20,849)




Intercompany Sales?Ponder





Intercompany Cost of Goods Sold?Ponder






Intercompany Lease Receivables?Ponder






Leased Equipment?Capital Lease?Sunder




($20,849 – $17,000)



     To eliminate intercompany accounts associated with five-year
          intercompany lease (minimum lessee payments $5,000 a year;
          lessor's 10% implicit rate, known to lessee and less than lessee's
          incremental borrowing rate) for property having a 10-year
          economic life, no residual value, and straight-line depreciation,
          and to defer unrealized portion of intercompany gross profit on
          sales-type lease. (Income tax effects are disregarded.)
          Prepare a comparable working paper elimination for Ponder Corporation and subsidiary on October 31, 2007. Omit explanation and disregard income taxes.

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