Spice Company issued $200,000 of 10 percent first mortgage bonds on January 1,20X4,at 105.The bonds mature in 10 years and pay interest semiannually on January 1 and July 1.Pumpkin Corporation purchased $140,000 of Spice's bonds from the original purchaser on December 31,20X8,for $125,000.Pumpkin owns 75 percent of Spice's voting common stock.Spice's partial bond amortization schedule is as follows:

-Based on the information given above,what amount of interest expense will be eliminated in the preparation of the December 31,20X9 consolidated financial statements?

Question

Spice Company issued $200,000 of 10 percent first mortgage bonds on January 1,20X4,at 105.The bonds mature in 10 years and pay interest semiannually on January 1 and July 1.Pumpkin Corporation purchased $140,000 of Spice's bonds from the original purchaser on December 31,20X8,for $125,000.Pumpkin owns 75 percent of Spice's voting common stock.Spice's partial bond amortization schedule is as follows:
 
-Based on the information given above,what amount of interest expense will be eliminated in the preparation of the December 31,20X9 consolidated financial statements?

Quizplus · Accepted Answer

The correct answer is A because the interest expense on the bonds payable is eliminated in the preparation of the consolidated financial statements. The interest expense on the bonds payable is $13,292.

Spice Company Issued $200,000 of 10 Percent First Mortgage Bonds