Kruse Corporation holds 60 percent of the voting common shares of Gary's Ice Cream Parlors.On January 1, 20X6, Gary's purchased $50,000 par value, 10 percent first mortgage bonds of Kruse from Cane for $58,000. Kruse originally issued the bonds to Cane on January 1, 20X4, for $53,000. The bonds have a 10-year maturity from the date of issue and pay interest semiannually. The bonds are accounted for using straight-line amortization of premiums and discounts.
Gary's reported net income of $20,000 for 20X6, and Kruse reported income (excluding income from ownership of Gary's stock) of $40,000.

Select the correct answer for each of the following questions.
1. What amount of interest expense does Kruse record 20X6?
a. $4,000.
b. $4,700.
c. $5,000.
d. $10,000.
2. What amount of interest income does Gary's Ice Cream Parlors record for 20X6?
a. $4,000.
b. $5,000.
c. $9,000.
d. $10,000.
3. What gain or loss on the retirement of bonds should be reported in the 20X6 consolidated income statement?
a. $2,400 gain.
b. $5,600 gain.
c. $5,600 loss.
d. $8,000 loss.
4. What amount of consolidated net income should be reported for 20X6?
a. $47,100.
b. $54,400.
c. $55,100.
d. $60,000.

  • CreatedMay 23, 2014
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