10. Light Corporation owns 80 percent of Sound Company\'s voting shares. On Janu

Question

10. Light Corporation owns 80 percent of Sound Company's voting shares. On January 1, 20X7, Sound sold bonds with a par value of $300,000 when the market rate was 7 percent. Light purchased two thirds of the bonds; the remainder was sold to non-affiliates. The bonds mature in ten years and pay an annual interest rate of 6 percent. Interest is paid semiannually on June 30 and Dec 31. Based on the information given above, what amount of interest expense will be eliminated in the preparation of the 20X8 consolidated financial statements? A. $13,096 B. $13,023 C. $8,730 D. $8,682

Explanation / Answer

Int.Expense 80% voting shares Int.Income Net Int. june 20x7 200000*3% 6000 80000*3% 2400 Dec. 20x7 206000*3% 6180 82400*3% 2472 June 20x8 212180*3% 6365.4 84872*3% 2546.16 Dec 20x8 218545.4*3% 6556.362 87418.16*3% 2622.5448 Total 25101.762 10040.7048 15061.0572 Net interest to be eliminated = 25102-10041= 15061

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