Prezo Company purchased 80% of Satz Companys common stock for $880,000 on January 2, 2009. Condensed financial

Prezo Company purchased 80% of Satz Company’s common stock for $880,000 on January 2, 2009. Condensed financial information for Prezo Company and Satz Company is given below.

On July 1, 2009, Prezo Company purchased 60% of Satz Company’s bonds for $225,000. The bonds mature on December 31, 2012. Interest of 10% per annum is paid on June 30 and December 31 each year. Both companies use the straight-line method to amortize bond dis- counts and premiums.

Required:
A. Compute the gain or loss on the constructive retirement of the bonds allocated to each of the affiliated companies.
B. Prepare a consolidated financial statements workpaper on December 31, 2009.
C. Prepare in good form a schedule showing the calculation of consolidated net income for the year ended December 31,2009.

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Prezo Co Satz Co. 920,000 880,000 227,143 2,345,457 $4372.600 700,000 580,000 Current Assets Investment in Satz Company Common Stock Investment in Satz Company Bonds Other Assets Bonds Payable (10%) Premium on Bonds Payable Other Liabilities Common Stock Retained Earnings 1,320,000 $1,900.000 $ 400,000 9,000 141,000 800,000 550,000 $1,900.000 20,000 1,434,600 1,600,000 618,000 Retained Earnings Statement for the Year Ended December 31, 2009 Premo Co. Satz Co. 1/1 Balance Net Income Dividends 12/31 Balance 480,000 388,000 (250,000) 618,000 300,000 400,000 (150,000) 550,000 Income Statement for the Year Ended December 31, 2009 Prezo Co. Satz Co. Sales Dividend Income Other Income $2,680,000 120,000 266,000 3,066,000 2,678,000 388,000 $1,860,000 120,000 1,980,000 1,580,000 400,000 Total Revenue Expenses Net Income