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.
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