Davis Company Has Had Bonds Payable of $15,000 Outstanding for Several

Multiple Choice

Davis Company has had bonds payable of $15,000 outstanding for several years. On January 1, 2021, when there was an unamortized discount of $2,500 and a remaining life of 5 years, its 80% owned subsidiary, Jacobson Company, purchased the bonds in the open market for $18,000. The bonds pay 7% 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) $5,500 gain.
B) $5,500 loss.
C) $3,000 gain.
D) $3,000 loss.
E) No gain or loss.