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 December 31, 20X8, for $125,000. 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 20X8 consolidated financial statements?
A. $2,500
B. $5,000
C. $2,800
D. $3,500
Answer: D
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