Answer the following questions using the information below:
The Hassan Corporation has an Electric Mixer Division and an Electric Lamp Division. Of a $10,000,000 bond issuance, the Electric Mixer Division used $7,000,000 and the Electric Lamp Division used $3,000,000 for expansion. Interest costs on the bond totaled $750,000 for the year.
-What amount of interest costs should be allocated to the Electric Mixer Division?
A)$225,000
B)$525,000
C)$2,100,000
D)$7,000,000

Question

Quizplus · Accepted Answer

The proportion of bond issuance used by Electric Mixer Division is 7,000,000/10,000,000 = 7/10 or 70%. The proportion used by Electric Lamp Division is 3,000,000/10,000,000 = 3/10 or 30%. Therefore, the interest cost allocated to Electric Mixer Division would be 70% of $750,000, which is $525,000.

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