E 7-3 Constructive gain/loss on purchase of subsidiary bonds Abbey Corporation owns 90 percent of the voting common stock of Westminster Corporation. At December 31, 2016, Westminster has $900,000 par of 8 percent bonds outstanding with an unamortized discount of $30,000. The bonds pay interest on January 1 and July 1 of each year, and they mature in five years, on January 1, 2022. On January 2, 2017, Abbey Corporation purchases 50 percent of Westminster’s outstanding bonds for $460,000 in cash. Assume straight-line amortization.

1. The amount of gain or loss that should be reported on Abbey Corporation and Subsidiary’s consolidated income statement at December 31, 2017, is:

a $25,000 loss b $25,000 gain c $20,000 loss d None of the above