Paper Corporation holds 80 percent of the voting shares of Scissor Company.On January 1,20X8,Scissor purchased $100,000 par value 12 percent Paper bonds from Cruse Corporation for $115,000.Paper 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 and pay interest semiannually on June 30 and December 31 each year.Scissor' reported net income of $65,000 for 20X8,and Paper reported income (excluding income from ownership of Scissor's stock)of $90,000.Paper's partial bond amortization schedule is as follows:

-Based on the information given above,what amount of interest expense does Paper record on its individual books in 20X8?

Question

Paper Corporation holds 80 percent of the voting shares of Scissor Company.On January 1,20X8,Scissor purchased $100,000 par value 12 percent Paper bonds from Cruse Corporation for $115,000.Paper 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 and pay interest semiannually on June 30 and December 31 each year.Scissor' reported net income of $65,000 for 20X8,and Paper reported income (excluding income from ownership of Scissor's stock)of $90,000.Paper's partial bond amortization schedule is as follows:
 
-Based on the information given above,what amount of interest expense does Paper record on its individual books in 20X8?

Quizplus · Accepted Answer

Paper records $10,950 of interest expense on its individual books in 20X8. This is because Paper's share of the consolidated interest expense is $10,950, which is calculated as follows:Consolidated interest expense = $100,000Paper's ownership percentage = 10.95%Paper's share of consolidated interest expense = $100,000 * 10.95% = $10,950

Paper Corporation Holds 80 Percent of the Voting Shares of Scissor