Final answer:
The constructive retirement gain or loss of Stad Corporation bonds owned by Prussia Corporation is calculated by comparing the carrying amount, adjusted for Prussia's ownership, and the cash paid to retire a portion of the bonds. The gain is the difference between the carrying amount and the cash paid. Given the data provided, an accurate gain or loss value does not match any of the options offered.
Step-by-step explanation:
The question asks to calculate the gain or loss on the constructive retirement of Stad Corporation bonds that Prussia Corporation owns. The company paid $391,000 for bonds with a par value of $400,000, which had a book value of $1,045,000 at the time of purchase. The straight-line amortization method is used to distribute the discount or premium on bonds equally for each period until the bond matures.
Since Prussia Corporation owns 80% of Stad Corporation, the retirement of these bonds is considered a constructive retirement. To calculate the gain or loss for the constructive retirement, we will compare the carrying amount of the bonds with the cash paid.
The carrying amount is the book value on January 1, 2013, adjusted for the 80% ownership. The bonds had a book value of $1,045,000, and since Prussia Corporation owns 80%, the carrying amount attributable to it is $1,045,000 x 80% = $836,000. Prussia Corporation paid $391,000 to retire $400,000 par of Stad's bonds, hence the gain on the constructive retirement is the difference between the carrying amount and the cash paid, which is $836,000 - $391,000 = $445,000.
However, the question seems to lack additional necessary details (such as amortization information) to determine the correct gain or loss that should be reported on the consolidated income statement. With the provided information, the answer would not correctly match any of the given options (A) $14,000, (B) $27,000, (C) $23,000, or (D) $21,600.