Separate Company and Consolidated Income Statements for Pitta and Sojourn

question 28

Essay

Separate company and consolidated income statements for Pitta and Sojourn Corporations for the year ended December 31,2011 are summarized as follows:
The interest income and expense eliminations relate to a $100,000,9% bond issue that was issued at par value and matures on January 1,2016.On January 2,2011,a portion of the bonds was purchased and constructively retired.
Required: Answer the following questions.
1.Which company is the issuing affiliate of the bonds payable?
2.What is the gain or loss from the constructive retirement of the bonds payable that is reported on the consolidated income statement for 2011?
3.What portion of the bonds payable is held by nonaffiliates at December 31,2011?
4.Is Sojourn a wholly-owned subsidiary? If not,what percentage does Pitta own?
5.Does the purchasing affiliate use straight-line or effective interest amortization?
6.Explain the calculation of Pitta's $19,900 income from Sojourn.

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Definitions:

Average Interitem Correlations

A statistic used to measure the consistency of responses among related items on a questionnaire or test, indicating the scale's internal reliability.

Reliability Estimate

A statistical measure that quantifies the consistency of a set of measurements or ratings.

Validity

The extent to which a concept, conclusion, or measurement is well-founded and corresponds accurately to the real world.

Construct

A hypothetical variable that is used to explain behavior in theories and models within the psychological and social sciences.