Problem

1. On January 1, 2016, P Company acquired 100% of the common stock of S Company.   Also on July 1, 2016, Siegel Company sold to outside investors $500,000 par value of 10-year, 8% bonds. The price received was equal to par. The bonds pay interest annual interest on December 31.

During early 2019, market interest rates on bonds similar to those issued by Siegel decreased to 7%. As a result, the market value of the bonds increased. On January 1, 2019, Pope purchased $250,000 par value of Siegel's bonds, paying $275,000. Pope still holds the bonds on December 31, 2019 and has amortized the premium, using the effective-interest method which has resulted in interest income of $19,250 and a balance in the Investment in Subsidiary Bonds account of $274,250.

Required:

Prepare the eliminating entries pertaining to the intercompany purchase of the bonds for the year ended December 31, 2019.

2. On January 1, 2016, Pope Company acquired 100% of the common stock of Siegel Company for $300,000. On January 1, 2016, Siegel Company sold to outside investors $500,000 par value of 10-year, 8% bonds. The price received was equal to par. The bonds pay interest annually on December 31. During 2016, market interest rates on bonds similar to those issued by Siegel decreased to 7%. As a result, the market value of the bonds increased. On December 31, 2016, Pope purchased $250,000 par value of Siegel's bonds, paying $277,000. Pope still holds the bonds on December 31, 2019 and has amortized the premium, using the straight-line method.

Required:

Prepare the eliminating entries pertaining to the intercompany purchase of bonds outstanding for the year ended December 31, 2019.