1. Choco owns 70% of Cake. On 1/1/2015, Cake issued $800,000 10 years bond at 6%. Cake issued the bond at $724,000, with effective interest of 7%. On 1/1/2016, Choco purchased all of Cakes bond for $886,000 with effective interest at 5% and Cakes bond has been effectively retired.

date	Cash interest	Effective interest	Amortization of bond discount	BV
1/1/2015				800,000-76,000 = 721,000
12/31/2015	24,000	2,5340	1,340	725,340
12/31/2016	24,000	25,386.9	13869.9	726726.9

Calculate the amount of gain or loss from this transaction to be recognized in consolidated statements on 12/31/2016

Make a journal entry that Cake will record regarding the bond interest expense on 12/31/2016.

Make a journal entry that Choco will record regarding the 1/1/2016 investment on bond, and bond interest expense on 12/31/2016.

1/1/16
12/31/16

Prepare consolidation entry B on 12/31/2016.