Fundamentals of Advanced Accounting 5th Edition by Joe Ben Hoyle,Thomas Schaefer,Timothy Doupnik

Exercise 10

Pesto Company possesses 80 percent of Salerno Company's outstanding voting stock. Pesto uses the initial value method to account for this investment. On January 1, 2009, Pesto sold 9 percent bonds payable with a $10 million face value (maturing in 20 years) on the open market at a premium of $600,000. On January 1, 2012, Salerno acquired 40 percent of these same bonds from an outside party at 96.6 of face value. Both companies use the straight-line method of amortization. For a 2013 consolidation, what adjustment should be made to Pesto's beginning Retained Earnings as a result of this bond acquisition
a. $320,000 increase.
b. $326,000 increase.
c. $331,000 increase.
d. $340,000 increase.