Use the following information to answer the question(s) below.

Plenty Corporation issued six thousand, $1,000 par, 6% bonds on January 1, 2012, at par. Interest is paid on January 1 and July 1 of each year; the bonds mature on January 1, 2017. On January 2, 2014, Scrawn Corporation, a 75%-owned subsidiary of Plenty, purchased 3,000 of the bonds on the open market at 102.50. Plenty's separate net income for 2014 included the annual interest expense for all 3,000 bonds. Scrawn's separate net income for 2014 was $400,000, which included the bond interest received on July 1 as well as the accrual of bond interest revenue earned on December 31. Both companies use straight-line amortization of bond discounts/premiums.

-Using the original information,the amount of consolidated Interest Expense for 2014 was

Question

Use the following information to answer the question(s) below.

Plenty Corporation issued six thousand, $1,000 par, 6% bonds on January 1, 2012, at par. Interest is paid on January 1 and July 1 of each year; the bonds mature on January 1, 2017. On January 2, 2014, Scrawn Corporation, a 75%-owned subsidiary of Plenty, purchased 3,000 of the bonds on the open market at 102.50. Plenty's separate net income for 2014 included the annual interest expense for all 3,000 bonds. Scrawn's separate net income for 2014 was $400,000, which included the bond interest received on July 1 as well as the accrual of bond interest revenue earned on December 31. Both companies use straight-line amortization of bond discounts/premiums.

-Using the original information,the amount of consolidated Interest Expense for 2014 was

Quizplus · Accepted Answer

For consolidated financial statements, intercompany transactions, such as the interest payments between Plenty Corporation and its subsidiary Scrawn Corporation, are eliminated. Since Scrawn Corporation is a 75%-owned subsidiary and it purchased 3,000 of the 6,000 bonds issued by Plenty, half of the interest expense related to these bonds would be eliminated in consolidation. The total annual interest expense for all 6,000 bonds is 6% of $1,000 times 6,000, which equals $360,000. Since half of this interest (related to the 3,000 bonds purchased by Scrawn) would be eliminated, the consolidated interest expense would be half of $360,000, which is $180,000.

Use the Following Information to Answer the Question(s) Below