Kruse Corporation holds 60 percent of the voting common shares of Gary's Ice Cream Parlors.On January 1,


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.

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Advanced Financial Accounting

ISBN: 978-0078025624

10th edition

Authors: Theodore E. Christensen, David M. Cottrell, Richard E. Baker

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