ended December 31, 2019.
E 7-6
Parent purchases subsidiary bonds
Pat Corporation owns a 70 percent interest in Son Corporation acquired several years ago at book value equal to fair
value. On January 1, 2011, Son had outstanding \$500,000 of 9 percent bonds with a book value of \$495,000. On Janu-
ary 2, 2011, Pat purchased \$250,000 of Son's 9 percent bonds for \$251,500. The bonds are due on January 1, 2015,
and pay interest on January 1 and July 1.
REQUIRED
1. Determine the gain or loss on the constructive retirement of Son's bonds.
2. Son reports net income of \$7,000 for 2011. Determine Pat's income from Son.