Hunter Corporation holds 80 percent of the voting shares of Moss Company. On Jan

Question

Hunter Corporation holds 80 percent of the voting shares of Moss Company. On January 1, 20X8, Moss purchased $100,000 par value 12 percent first mortgage bonds of Hunter from Cruse for $115,000. Hunter 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. Moss reported net income of $65,000 for 20X8, and Hunter reported income (excluding income from ownership of Moss's stock) of $90,000. Based on the information given, what amount of interest expense does Hunter record annually?

Explanation / Answer

Calclation of interest expenses :

Premium on bond = 115000 - 100000

= 15000

Annual amortization of premium = 15000/8 = 1875

Coupon payment = 100000 x 12% = 12000

Toal interest expense = 12000 + 1875

= $13875

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