Peskett Products Inc. owns 75% of the common shares of Sunburst Corp. On January 1, 2017, Peskett Products issued bonds with a par value of $350,000 which will mature on January 1, 2022. The bonds bear interest at an annual rate of 8%, with annual interest payments made each December 31st. At the date of issue of the bonds, Peskett Products received proceeds of $360,000. Carrying amount for Peskett Products at January 1, 2019 was $356,434. On January 1, 2019, Sunburst Corp. purchased 30% of Peskett Products bonds on the open market for $100,537. Both companies use the effective interest method. Both companies have a December 31st year-end and pay income taxes at a rate of 40%. Bond gains and losses are to be allocated to each company. During 2019, Sunburst Corp. earned a net income of $80,000 and paid dividends of $20,000. Market rates (Yield) for these bonds was 7.3% at January 1, 2017 (issue date) and 9.7% at January 1, 2019 (Sunburst purchased 40% of Peskett Products bonds).

REQUIRED:

1. Calculate the amount of the gain or loss that will appear as a separate item on the 2019 consolidated income statement, as a result of the bond transaction. (2 marks)

2. Calculate the after-tax gain or loss to Sunburst Corp. on the purchase of the Bonds. (2 marks)

3. Calculate the after-tax gain or loss to Peskett Products on the purchase of the Bonds. (2 marks)

4. What amount of after-tax interest expense (if any) would have to be eliminated in 2019 as a result of the purchase of the Bonds? (3 marks)

5. What value would be shown on Peskett Products December 31, 2019 Consolidated Balance Sheet for the Bond issue (Bonds Payable)? (3 marks)

6. Calculate the non-controlling interests share of Sunbursts Income for the year-ended Dec. 31, 2019. (3 marks)