Key Company Has Had Bonds Payable of $20,000 Outstanding for Several

Multiple Choice

Key Company has had bonds payable of $20,000 outstanding for several years. On January 1, 2021, there was an unamortized premium of $2,000 with a remaining life of 10 years, Key's parent, Peele, Inc., purchased the bonds in the open market for $17,000. Key is a 90% owned subsidiary of Peele. The bonds pay 8% interest annually on December 31. The companies use the straight-line method to amortize interest revenue and expense. Compute the consolidated gain or loss on a consolidated income statement for 2021.

A) $3,000 gain.
B) $3,000 loss.
C) $5,000 gain.
D) $5,000 loss.
E) $2,000 gain.