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Topic
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On December 31, 2008, Pico acquired $250,000 par value of the outstanding $1,000,000 bonds of its subsidiary, Sico, in the market for $200,000. On that date, Sico had a $100,000 premium on its total bond liability.
Which one of the following is the net amount of gain or loss that will be recognized by Pico in its December 31, 2008, consolidated financial statements as a result of its intercompany bonds?
A. $25,000
B. $50,000
C. $75,000
D. $150,000
The answer is $75,000. Can somebody please explain why it is $75,000 and not $25,000? I understand that it’s related to an intercompany elimination, but the explanation just isn’t sinking in very well. Any help is much appreciated. Thanks!
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