On 1/1/A Saddle Co. issues $20k of 4-year 6% bonds to yield 8%; the bond date is 1/1/A (thus coupon payments occur each 12/31). Pony Co. (who owns 80% of S) purchases 9 of the bonds on 1/1/B for $8,104.73. S was happy to saddle their parent firm with the debt; P, of course, was thrilled at having to pony up so little for the bonds.

For credit, you must provide the following:

1. Provide an amortization table for the 9 repurchased bonds from the point of view of S Co. from 1/1/B onward. You must use the interest method of amortization and the table format I used in class. This table should be prepared using Excel and a printout submitted as your response to question #1.

2. Provide an amortization table for the 9 bonds from the point of view of P Co. from 1/1/B onward. You must use the interest method of amortization and the table format I used in class. [Hint: you gotta figure out the market rate of interest on the repurchase date first.] This table should be prepared using Excel and a printout submitted as your response to question #2.

3. The Gain/Loss on Constructive Retirement is the difference between Ss 1/1/B Bond net book value and Ps 1/1/B repurchase price. These should be the first 2 numbers in your amortization tables. This amount is: ____________

4. Total interest expense for the years following the repurchase (this should be shown as the total of the interest column in your printout of Ss amortization table): ____________

5. Total interest revenue for the years following the repurchase (this should be shown as the total of the interest column in your printout of Ps amortization table): ____________ [Recall: the difference between #4 and #5 above should be the same as the answer to #3 above.]

6. In the space below, provide Ps 12/31/C workpaper entry to eliminate the intercompany bond accounts. Note that I am asking for a single year C elimination entry.