Separate Company and Consolidated Income Statements for Pitta and Sojourn

question 3

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:

Transitory

Pertaining to or lasting for only a short period of time; temporary and fleeting in nature.

Unmodulated Color

A color that is consistent in hue and intensity across a surface, without gradation in tone or shade.

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The material (for example, marble, bronze, clay, fresco) in which an artist works; also, in painting, the vehicle (usually liquid) that carries the pigment.

Humanity

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