Pacelli Company issued 10-year, 10% bonds with a par value of $1,000,000 on January 2, 2010, for $940,000. Interest is paid semiannually on June 30 and December 31. On December 31, 2011, $800,000 of the par value bonds were purchased by Salez Company for $820,000. Salez Company is an 80%-owned subsidiary of Pacelli Company. Both companies use the straight line method to amortize bond discounts and premiums.

Salez Company declared cash dividends of $60,000 each year during the period 2011-2012.

Required:

A. Compute the total gain or loss on the constructive retirement of debt.

B. Allocate the total gain or loss between Pacelli Company and Salez Company.

C. Prepare the book entries related to the bonds made by the individual companies during 2012.

D. Assume that the two companies reported net income as follows:

Compute controlling interest in consolidated net income and the noncontrolling interest in consolidated income for 2011 and2012.

Pacelli Company $260,000 280,000 Salez Company $140,000 190,000 2011 2012