Use the Following Information to Answer the Question(s)below

question 7

Multiple Choice

Use the following information to answer the question(s) below.
Plenty Corporation issued six thousand,$1,000 par,6% bonds on January 1,2010,at par.Interest is paid on January 1 and July 1 of each year;the bonds mature on January 1,2015.On January 2,2012,Scrawn Corporation,a 75%-owned subsidiary of Plenty,purchased 3,000 of the bonds on the open market at 102.50.Plenty's separate net income for 2012 included the annual interest expense for all 3,000 bonds.Scrawn's separate net income for 2012 was $400,000,which included the bond interest received on July 1 as well as the accrual of bond interest revenue earned on December 31.Both companies use straight-line amortization of bond discounts/premiums.
-Pickle Incorporated acquired a $10,000 bond originally issued by its 80%-owned subsidiary on January 2,2011.The bond was issued in a prior year for $11,250,matures January 1,2016,and pays 9% interest at December 31.The bond's book value at January 2,2011 is $10,625,and Pickle paid $9,500 to purchase it.Straight-line amortization is used by both companies.How much interest income should be eliminated in 2011?

• A)$720
• B)$800
• C)$900
• D)$1,000

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Definitions:

Net Asset Value

The net worth of a fund, calculated by subtracting its liabilities from the sum of its assets, commonly associated with mutual and exchange-traded funds.

Closed-end Fund

A type of investment fund with a fixed number of shares that are traded on the stock exchange, unlike mutual funds which continuously offer new shares or buy back existing shares.

Brokered Markets

Marketplaces where buyers and sellers are brought together by third-party brokers to facilitate transactions.

Continuous Auction Markets

Markets where buyers and sellers continuously submit competitive bids and offers, allowing for trades throughout the trading session.