Pachelor Corporation Owns 70% of the Outstanding Stock of Stabb

question 6

Essay

Pachelor Corporation owns 70% of the outstanding stock of Stabb Company.On January 1,2010,Stabb issued $1,000,000 in 7% bonds that matured on January 1,2015.At the time of issuance,the bonds were sold at a discount of $125,000.At January 2,2012,Pachelor purchased the bonds for $1,400,000,and constructively retired the debt.Interest is paid annually on January 1.Straight-line amortization is used by both companies.
Required:
1.Calculate the gain or loss that the consolidated entity incurred to retire the debt.
2.Prepare eliminating/adjusting entries for the consolidating work papers for the year ended December 31,2012.

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Definitions:

Incontestability Clause

A provision in a life insurance policy stating that after a certain period of time, the insurer cannot contest the statements in the application.

Insurance Application

A formal request for coverage submitted to an insurer, detailing the terms and conditions.

Fraud Investigation

The process of examining activities to identify and investigate instances of fraudulent conduct.

Duty to Disclose

A legal obligation requiring a party to reveal relevant information to others, often in the context of transactions, negotiations, or legal proceedings.