Pang Corporation owns 80 percent interest in Sunda Corporation. On January 1, 2016, Sunda purchased $100,000 par of Pang’s $1,000,000 outstanding bonds for $98,000 in the bond market. Pang’s bonds...

Pang Corporation owns 80 percent interest in Sunda Corporation. On January 1, 2016, Sunda purchased $100,000 par of Pang’s $1,000,000 outstanding bonds for $98,000 in the bond market. Pang’s bonds have a 10 percent interest rate, paid on January 1 and July 1, and mature on January 1, 2021. There was a $50,000 unamortized premium on the bond issue on January 1, 2016. Assume straight-line amortization.

1. The constructive gains or loss that should appear in the consolidated income statement of Pang Corporation and Subsidiary for 2016 is:

a $2,000 loss

b $7,000 gain

c $5,000 gain

d None of the above

2. Interest income that should appear in the 2016 consolidated income statement for Pang’s bond issue is:

a $14,000

b $10,400

c $10,000

d None of the above