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

question 16

Multiple Choice

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 January 1,20X8,for $122,000.Pumpkin owns 75 percent of Spice's voting common stock.
-Based on the information given above,what amount of premium on bonds payable will be eliminated in the preparation of the 20X9 year-end consolidated financial statements?

• A)$3,500
• B)$2,800
• C)$5,000
• D)$2,500

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Definitions:

Irreversible Commitments

Refers to decisions or agreements that cannot be undone or easily reversed.

Premanufacture Screening

The evaluation and testing of a product or substance before it is manufactured or released to the public, to ensure safety and compliance with regulatory standards.

International Standards

Agreed-upon norms and technical specifications designed to ensure products, services, and systems are safe, reliable, and consistent worldwide.

Sulfur Oxide

A chemical compound comprised of sulfur and oxygen, which can exist in several forms, notable for its role in contributing to air pollution and acid rain.