LO.1, 2 Chee purchases Tan, Inc. bonds for $108,000 on January 2, 2012. The face value of the bonds is $100,000; the maturity date is December 31, 2016; and the annual interest rate is 5%. Chee will amortize the premium only if he is required to do so. Chee sells the bonds on July 1, 2014, for $106,000.

a. Determine the interest income Chee should report for 2012.

b. Calculate Chee’s recognized gain or loss on the sale of the bonds in 2014.