Keenan Company has had bonds payable of $20,000 outstanding for several years.On January 1, 2018, there was an unamortized premium of $2,000 with a remaining life of 10 years, Keenan's parent, Ross, Inc., purchased the bonds in the open market for $19,000.Keenan is a 90% owned subsidiary of Ross.The bonds pay 8% interest annually on December 31.The companies use the straight-line method to amortize interest revenue and expense.Compute the consolidated gain or loss on a consolidated income statement for 2018.
A) $3,000 gain.
B) $3,000 loss.
C) $1,000 gain.
D) $1,000 loss.
E) $2,000 gain.

Question

Quizplus · Accepted Answer

The bonds were purchased for $19,000, but the carrying amount was $22,000 ($20,000 face value + $2,000 unamortized premium). The difference of $3,000 ($22,000 - $19,000) results in a gain on the consolidated income statement.

Keenan Company Has Had Bonds Payable of $20,000 Outstanding for Several