Comparative balance sheets of Pit and Sal Corporations at December 31, 2011, follow:

Pit acquired 80 percent of Sal's capital stock for $1,660,000 on January 1, 2009, when Sal's capital stock was $2,000,000 and its retained earnings was $75,000. On January 2, 2011, Pit acquired $200,000 par of Sal's 10 percent bonds in the bond market for $195,500, on which date the unamortized premium for bonds payable on Sal's books was $45,000. The bonds pay interest on January

1 and July 1 and mature on January 1, 2016. (Assume straight-line amortization.)

1. The gain or loss on the constructive retirement of $200,000 of Sal bonds on January 2, 2011, is reported in the consolidated income statement in the amount of:

a. $13,500

b. $11,500

c. $10,500

d. $7,000

2. The portion of the constructive gain or loss on Sal bonds that remains unrecognized on the separate books of Pit and Sal at December 31, 2011, is:

a. $12,000

b. $10,800

c. $10,500

d. $9,200

3. Consolidated bonds payable at December 31, 2011, should be reported at:

a. $1,036,000

b. $1,000,000

c. $828,800

d.$800,000

Transcribed Image Text:

Pit Sal Assets Accounts receivable-net $ 1,024.300 10,000 3,000,000 98,500 3,840,000 1,830,800 $ 300,000 Interest receivable Inventories 500,000 Other current assets 200,000 Plant assets-net 2,500,000 Investment in Sal stock Investment in Sal bonds 196,400 $10.000,000 $3.500,000 Total assets Pit Sal Liabilities and Stockholders' Equity Accounts payable Interest payable 10% bonds payable Capital stock Retained earnings Total equities $ 400,000 S 139,000 50.000 1,036,000 8,000,000 2,000,000 1,600,000 $10,000,000 275,000 $3,500,000