Pickle Incorporated acquired a $10,000 bond originally issued by its 80%-owned subsidiary on January 2, 2013. The bond was issued in a prior year for $11,250, matures January 1, 2018, and pays 9% interest at December 31
The bond's book value at January 2, 2013 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 2013?
A) $720
B) $800
C) $900
D) $1,000
D
Explanation: D) $9,500 - $10,000 = discount to amortize as interest expense over 5 years, or $100 per year + $900 paid by issuer.
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