Kruse Corporation holds 60 percent of the voting common shares of Gary’s Ice Cream Parlors. On January 1, 20X6, Gary’s purchased $50,000 par value, 10 percent first mortgage bonds of Kruse from Cane for $58,000. Kruse originally issued the bonds to Cane on January 1, 20X4, for $53,000 (assuming a market interest rate of 9.074505 percent). The bonds have a 10-year maturity from the date of issue and pay interest semiannually on June 30th and December 31st.

The bonds are accounted for using straight-line amortization of premiums and discounts. Gary's reported net income of $20,000 for and Kruse reported income (excluding income from ownership of Gary's
stock) of $40,000.

Required:
Select the correct answer for each of the following questions.
1. What amount of interest expense does Kruse record 20X6?
a. $4,000.
b. $4,700.
c. $5,000.
d. $10,000.

2. What amount of interest income does Gary's Ice Cream Parlors record for
a. $4,000.
b. $5,000.
c. $9,000.
d. $10,000.

3. What gain or loss on the retirement of bonds should be reported in the 20X6 consolidated income statement?
a. $2,400 gain.
b. S5,600 gain.
c. $5,600 loss.
d. S8,000 loss.

4. What amount of consolidated net income should be reported for 20X6?
a. $47,100.
b. $4,400.
c. $55,100.
d. S60,000.