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, 2011. Condensed financial information for Prezo Company and Satz Company is given below.

On July 1, 2011, Prezo Company purchased 60% of Satz Company’s bonds for $ 247,071 (a 9% yield). The bonds mature on December 31, 2014. Interest of 10% per annum is paid on June 30 and December 31 each year. Both companies use the effective interest method to amortize bond discounts and premiums. The Satz Co. bond was originally issued to yield 8% and Prezo Company’s bond was issued at par.
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, 2011.
C. Prepare in good form a schedule showing the calculation of consolidated net income for the year ended December 31,2011.
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