Pam Corporation's long-term debt on January 1, 2016, consists of $400,000 par value of 10 percent bonds

Question:

Pam Corporation's long-term debt on January 1, 2016, consists of $400,000 of 10 percent bonds payable due on January 1, 2020, with an unamortized discount of $8,000. On January 2, 2016, Sun Pam's 90 percent owned subsidiary, purchased $80,000 par of Pam's 10 percent bonds for $76,000. Interest payment dates are January 1 and July 1, and straight-line amortization is used.
1. On the of Pam and Subsidiary for 2016, a gain or loss should be reported in the amount of:
a. $5,600 loss
b. $4,000 gain
c. $2,400 gain
d. $2,000 loss
2. Bonds payable of Pam less unamortized discount appears in the consolidated at December 31, 2016, in the amount of:
a. $392,000
b. $394,000
c. $320,000
d. $315,200
3. The amount of the constructive gain or loss that is unrecognized on the separate books of Pam and Sun at December 31, 2016, is:
a. $2,400
b. $2,200
c. $1,800
d. $0
4. Interest expense on Pam bonds appears in the for 2016 at:
a. $42,000
b. $40,000
c. $33,600
d. $32,000
5. Consolidated net income for 2017 will be affected by the intercompany bond transactions as follows:
a. Increased by 100 percent of the constructive gain from 2016
b. Decreased by 25 percent of the constructive gain from 2016
c. Increased by 25 percent of the constructive loss from 2016
d. Decreased by (25% ∙ 90%) of the constructive loss from 2016
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