Problem 6-27 (LO 6-2)

Highlight, Inc., owns all outstanding stock of Kiort Corporation. The two companies report the following balances for the year ending December 31, 2014:

Highlight Kiort

Revenues and interest income $ (670,000) $ (390,000)

Operating and interest expense 540,000 221,000

Other gains and losses (120,000) (32,000)

Net income $ (250,000) $ (201,000)

Note: Parentheses indicate a credit balance.

On January 1, 2014, Highlight acquired on the open market bonds for $108,000 originally issued by Kiort. This investment had an effective rate of 8 percent. The bonds had a face value of $100,000 and a cash interest rate of 9 percent. At the date of acquisition, these bonds were shown as liabilities by Kiort with a book value of $84,000 (based on an effective rate of 11 percent).

Determine the balances that should appear on a consolidated income statement for 2014.