Prezo Company purchased 80% of Satz Companys common stock for $880,000 on January 2, 2011. Condensed financial

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.
Required:
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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Balance Sheet December 31, 2011 Prezo Co Satz Co. $ 920,000 880,000 246,189 2,326,411 $4,372,600 580,000 Gurrent Assets Investment Satz Company Common Stock Investment in Satz Company Bonds Other Assets 1,320,000 $1,900,000 700,000 Bonds Payable (10%) Premiu Other Liabilities Common Stock Retained Earnings $ 400,000 20,968 129,032 800,000 550,000 $1,900,000 m on Bonds Payable 1,454,600 1,600,000 618,000 $4,372,600 Retained Earnings Statement for the Year Ended December 31, 2011 Prezo Co. Satz Co. 480,000 388,000 300,000 400,000 1/1 Balance Net Income Dividends 12/31 Balance (250,000)150000) 550,000 Income Statement for the Year Ended December 31, 2011 Prezo Co. Satz Co. Sales Dividend Income Other Income Total Revenue Expenses Net Income 2,680,000 120,000 266,000 3,066,000 2,678,000 S388,000 $1,860,000 120,000 1,980,000 1,580,000 $ 400,000