Constructive Gain or Loss on Bond Retirement with WorkpaperCost Method (effective interest method) Prezo Company purchased 80% of Satz Companys common stock for $880,000 on January 2, 2014. Condensed financial information for Prezo Company and Satz Company is given below.

Balance Sheet December 31, 2014 Prezo Co. Satz Co. Current Assets $920,000 $580,000 Investment in Satz Company Common Stock 880,000 Investment in Satz Company Bonds 246,189 Other Assets 2,326,411 1,320,000 $4,372,600 $1,900,000 Bonds Payable (10%) $700,000 $400,000 Premium on Bonds Payable 20,968 Other Liabilities 1,454,600 129,032 Common Stock 1,600,000 800,000 Retained Earnings 618,000 550,000 $4,372,600 $1,900,000 Retained Earnings Statement for the Year Ended December 31, 2014

Prezo Co. Satz Co. 1/1 Balance $480,000 $300,000 Net Income 388,000 400,000 Dividends (250,000) (150,000) 12/31 Balance $618,000 $550,000

Income Statement for the Year Ended December 31, 2014 Prezo Co. Satz Co. Sales $2,680,000 $1,860,000 Dividend Income 120,000 Other Income 266,000 120,000 Total Revenue 3,066,000 1,980,000 Expenses 2,678,000 1,580,000 Net Income $388,000 $400,000

On July 1, 2014, Prezo Company purchased 60% of Satz Companys bonds for $ 247,071 (a 9% yield). The bonds mature on December 31, 2017. The 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 Companys 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, 2014.

C. Prepare in good form a schedule showing the calculation of consolidated net income for the year ended December 31, 2014.