Consolidated amounts when affiliate's debt is acquired from non-affiliate

Assume that a Parent company owns 100 percent of its Subsidiary. On December 31, 2013, the Parent company had a $400,000 (face) bond payable outstanding with a carrying value of $420,000. The bond was originally issued to an unaffiliated company. On that same date, the Subsidiary acquired the bond for $398,000. During 2013, the Parent company reported $180,000 of (pre-consolidation) income from its own operations (i.e., prior to any equity method adjustments by the Parent company) and after recording interest expense. The Subsidiary reported $100,000 of (pre-consolidation) income from its own operations. Related to the bond during 2013, the parent reported interest expense of $55,000. The unaffiliated company that held the bond prior to December 31, 2013 recorded interest income of $55,000. Determine the following amounts that will appear in the 2013 consolidated income statement:

a. Interest income from bond investment

b. Interest expense on bond payable

c. Gain (loss) on constructive retirement of bond payable Use a negative sign with answer to indicate a loss.

d. Consolidated net income