LO3 62. Consolidation procedures for constructive retirement of affiliate debt acquired from non-affiliate-Equity method Assume that on January 1, 2017, a Parent company issued to an unaffiliated company a 12-year, 7 percent bond with a par value of $500,000 for $470,000. Interest is paid annually on December 31. On December 31, 2018, an affiliated Subsidiary purchased $400,000 (face) of the bonds for $416,000. In addition, on January 1, 2019, the Subsidiary had common stock of $300,000 and re- tained earnings of $200,000. The Parent owns 75 percent of the Subsidiary, and it is consolidated by the parent as a voting interest entity. There is no acquisition accounting premium (AAP) associated with the Parent's investment in the Subsidiary. Both companies use the straight-line amortization of bond premiums and discounts. The Parent and Subsidiary reported the following (pre-consolidation) income from their own operations (i.e., prior to any equity method adjustments by the Parent com- pany), but after recording interest income and interest expense: NI Parent N l Subsidiary 2018. ....... 2019.... $250,000 270,000 $180,000 190,000 The Subsidiary also declared and paid a $50,000 cash dividend in each year, 2018 and 2019. The par- ent uses the equity method of pre-consolidation investment bookkeeping. a. Compute the amount of gain or loss that must be recognized in the consolidated financial statements for the constructive retirement of debt. In what year is this gain or loss recognized? b. Prepare the bond-related journal entries recorded in the pre-consolidation financial statements by each company for the year ended December 31, 2019. C. For the year ended December 31, 2019, compute the controlling interest in consolidated net income and the noncontrolling interest in consolidated net income. d. Prepare the consolidation entries for the year ended December 31, 2019