Downlink Corporation is 95 percent owned by Online Enterprises. On January 1, 20X1, Downlink Corporation issued \(\$ 200,000\) of five-year bonds at 115 . Annual interest of 12 percent is paid semiannually on January 1 and July 1. Online Enterprises purchased \(\$ 100,000\) of the bonds on August \(31,20 \times 3\), at par value. The following balances are taken from the separate \(20 \times 3\) financial statements of the two companies:

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a. Compute the amount of interest expense that should be reported in the consolidated income statement for 20X3.

b. Compute the gain or loss on constructive bond retirement that should be reported in the \(20 \times 3\) consolidated income statement.

c. Prepare the consolidation workpaper eliminating entry or entries as of December \(31,20 \times 3\), to remove the effects of the intercorporate bond ownership.

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Investment in Downlink Corporation Bonds Interest Income Interest Receivable Bonds Payable Bond Premium Interest Expense Interest Payable Online Enterprises Downlink Corporation $100,000 4.000 6.000 $200.000 12,000 18.000 12.000