Son Corporation is a 70 percent-owned subsidiary of Pop Corporation. On January 2, 2016, Son purchased $600,000

Question:

Son is a 70 percent-owned subsidiary of Pop On January 2, 2016, Son purchased $600,000 par of Pop's $900,000 outstanding bonds for $602,000 in the bond market. Pop's bonds have an 8 percent interest rate, pay interest on January 1 and July 1, and mature on January 1, 2020. There was $48,000 unamortized premium on the bond issue on January 1, 2016. Assume straight-line amortization.
1. The constructive gain or loss that should appear in the of Pop and Subsidiary for 2016 is:
a. $30,000 gain
b. $46,000 gain
c. $2,000 loss
d. $30,000 loss
2. Interest expense that should appear in the 2016 for Pop's bond issue is:
a. $28,000
b. $24,000
c. $20,800
d. $20,000
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