The total gain or loss on constructive retirement of debt

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Reference no: EM131354276

Pallet Corporation owns 90% of the outstanding common stock of Stealth Company. On January 1, 2014, Stealth Company issued $500,000, 12%, ten-year bonds. On January 1, 2016, Pallet Corporation paid $412,000 for Stealth Company bonds with a par value of $400,000 and a carrying value of $393,600. Both companies use the straight-line method to amortize bond premiums and discounts. Pallet Corporation accounts for the investment using the cost method of accounting. The total gain or loss on the constructive retirement of the debt to be reported in the 2016 consolidated income statement is 1

2,000 gain.

$12,000 loss.

$18,400 loss.

$18,400 gain.

please explain

Reference no: EM131354276

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