Prezo Company purchased 80 of Satz Company s common stock for
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.

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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