Prezo Company purchased 80% of Satz Companys common stock for $880,000 on January 2, 2014. Condensedfinancial information for Prezo Company and Satz Company is given below.

Balance SheetDecember 31, 2014

Prezo co Satz co

Current assets $ 920,000 $ 580,0000

Investment in satz company common stock 880,000

Investment in satz company Bonds 241,189

Other assets 2,326,411 1,320,0000

total $ 4,372, 600 $1,900,000

Bonds payables (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

Total $ 4,372,600 $ 1,900,000

Balance SheetDecember 31, 2014

Prezo co Satz Co

1/1 Balance $ 480,000 $ 300,000

Net income 388,000 400,000

Dividend (250,000) (150,000)

12/31 Balance $ 618,000 $ 550,000

income Statementfor the Year Ended December 31, 2014

Prezco Satz Co

Sales $ 2,680,00 $ 1,860,000

Dividend income 120,000

Other income 266,000 120,000

Total revenue 3066,000 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 bondsmature on December 31, 2017. Interest of 10% per annum is paid on June 30 and December 31 each year. Bothcompanies use the effective interest method to amortize bond discounts and premiums. The Satz Co. bond wasoriginally 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 affiliatedcompanies.

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 endedDecember 31, 2014.

Please show all work