Pesto Company possesses 80 percent of Salerno Companys outstanding voting stock. Pesto uses the initial value method

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Pesto Company possesses 80 percent of Salerno Company’s outstanding voting stock. Pesto uses the initial value method to account for this investment. On January 1, 2020, Pesto sold 9 percent bonds payable with a $10 million face value (maturing in 20 years) on the open market at a premium of $600,000. On January 1, 2023, Salerno acquired 40 percent of these same bonds from an outside party at 96.6 percent of face value. Both companies use the straight-line method of amortization. For a 2024 consolidation, what adjustment should be made to Pesto’s beginning Retained Earnings as a result of this bond acquisition?

a. $320,000 increase

b. $326,000 increase

c. $331,000 increase

d. $340,000 increase

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Advanced Accounting

ISBN: 9781264798483

15th Edition

Authors: Joe Ben Hoyle, Thomas Schaefer And Timothy Doupnik

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