Hasselo, Incorporated, owns 90 percent of Bentelo Company. On December 31, 2020, Hasselo acquires half of Bentelos 500,000 outstanding bonds. The bonds pay a cash interest rate of 10 percent every December 31 and are scheduled to come due on December 31, 2030. Hasselo paid 283,550 for this investment, indicating an 8 percent effective yield. At the moment that Hasselo acquired the Bentelo bonds, Bentelo had already paid the interest for 2020.

Bentelo issued this debt on the open market on January 1, 2018, at a 12 percent effective rate, for 435,766.

Both Hasselo and Bentelo use the effective rate method to account for these bonds in their individual accounts.

1. What gain or loss from the retirement of this debt should be reported on the consolidated income statement for 2020?

2. What balances should appear in the Investment in Bentelo Bonds account on Hasselos records and the Bonds Payable account of Bentelo as of December 31, 2021?

3. What will be the effect of the differences in interest earned (Hasselo) and interest expense (Bentelo) on the consolidated income statement for 2021? Is this effect a gain or a loss?