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

Multiple Choice

Granite 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. Mortar Corporation purchased $140,000 of Granite's bonds from the original purchaser on January 1, 20X8, for $122,000. Mortar owns 75 percent of Granite'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