Kruse Corporation holds 60 percent of the voting common shares of Gary’s Ice Cre
ID: 2328557 • Letter: K
Question
Kruse Corporation holds 60 percent of the voting common shares of Gary’s Ice Cream Parlors. On January 1, 20X6, Gary’s purchased $50,000 par value, 10 percent first mortgage bonds of Kruse from Cane for $58,000. Kruse originally issued the bonds to Cane on January 1, 20X4, for $53,000 (assuming a market interest rate of 9.074505%). The bonds have a 10-year maturity from the date of issue and pay interest semiannually on June 30th and December 31st.
Gary’s reported net income of $20,000 for 20X6, and Kruse reported income (excluding income from ownership of Gary’s stock) of $40,000.
What amount of interest expense does Kruse record for 20X6? (Do not round your intermediate calculations. Round your final answer to nearest whole dollar)
$4,805.
$4,756.
$4,767.
$4,777.
[The following information applies to questions 3-6 displayed below.]Explanation / Answer
Annual effective interest Half yearly effective interest 9.074505 4.537253 flows Actual Interest 01-01-20X4 53000 1 53000 01-06-20X4 -2500 0.95659679 -2391.49 2404.744 31-12-20X4 -2500 0.91507742 -2287.69 2404.744 01-06-20X5 -2500 0.87536012 -2188.4 2404.744 31-12-20X5 -2500 0.83736668 -2093.42 2404.744 01-06-20X6 -2500 0.80102227 -2002.56 2404.744 31-12-20X6 -2500 0.76625533 -1915.64 2404.744 -2500 0.73299739 -1832.49 -2500 0.70118295 -1752.96 -2500 0.67074936 -1676.87 -2500 0.64163668 -1604.09 -2500 0.61378759 -1534.47 -2500 0.58714724 -1467.87 -2500 0.56166316 -1404.16 -2500 0.53728518 -1343.21 -2500 0.51396527 -1284.91 -2500 0.49165753 -1229.14 -2500 0.47031801 -1175.8 -2500 0.4499047 -1124.76 -2500 0.43037739 -1075.94 -2500 0.41169763 -1029.24 -50000 0.41169763 -20584.9 Total flows 0 Premium on bonds Debit 190.51 Interest expense Debit 4809.49 Cash Credit 5000 The correct option is 1 4805 So, interest expense will be 4809.49 Difference due to round off 4.49
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.