Hunter Corporation holds 80 percent of the voting shares of Moss Company. On January 1, 20X8, Moss purchased $100,000 par value 12 percent first mortgage bonds of Hunter from Cruse for $115,000. Hunter originally issued the bonds to Cruse on January 1, 20X6, for $110,000. The bonds have an 8-year maturity from the date of issue. Moss' reported net income of $65,000 for 20X8, and Hunter reported income (excluding income from ownership of Moss's stock) of $90,000.
Based on the information given above, what amount of interest expense does Hunter record annually?
A) $10,750
B) $9,500
C) $2,500
D) $12,000

Question

Quizplus · Accepted Answer

Hunter records interest expense of $10,750 annually. This is calculated as 12% x $110,000 x 80%.

Hunter Corporation Holds 80 Percent of the Voting Shares of Moss