Key Company Has Had Bonds Payable of $21,000 Outstanding for Several

question 17

Multiple Choice

Key Company has had bonds payable of $21,000 outstanding for several years. On January 1, 2021, there was an unamortized premium of $1,000 with a remaining life of 10 years, Key's parent, Peele, Inc., purchased the bonds in the open market for $18,000. Key is an 80% owned subsidiary of Peele. The bonds pay 7% 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 2021.

• A) $3,000 gain.
• B) $3,000 loss.
• C) $4,000 gain.
• D) $4,000 loss.
• E) $2,000 gain.

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