Pesto Company posesses 80 percent of Salerno Company'soutstanding voting stock. Pesto uses the initial value method toaccount for this investment. On January 1, 2014, Pesto sold 9percent bonds payable with a 10 million dollar face value (maturingin 20 years) on the open market at a premium of 600,000. On January1 2017, Salerno acquired 40 percent of these same bonds from anoutside party at 96.6 percent of face value. Both companies use thestraight line method of amortization. For 2018 consolidation whatadjustment should be made to Pesto's beginning Retained earnings asa result of this bond acquisition? Please show step by stepcalculations
