A parent company buys bonds on the open market that had been previously issued by its subsidiary. The price paid by the parent is less than the carrying amount of the bonds on the subsid-iary’s records. How should the parent report the difference between the price paid and the carrying amount of the bonds on its consolidated financial statements?a. As a loss on retirement of the bonds.b. As a gain on retirement of the bonds.c. As an increase to interest expense over the remaining life of the bonds.d. Because the bonds now represent intra-entity debt, the difference is not reported

A parent company buys bonds on the open market that had been previously issued by its subsidiary. The price paid by the parent is less than the carrying amount of the bonds on the subsid-iary’s records. How should the parent report the difference between the price paid and the carrying amount of the bonds on its consolidated financial statements?a. As a loss on retirement of the bonds.b. As a gain on retirement of the bonds.c. As an increase to interest expense over the remaining life of the bonds.d. Because the bonds now represent intra-entity debt, the difference is not reported

SWFT Corp Partner Estates Trusts

42nd Edition

ISBN:9780357161548

Author:Raabe

Publisher:Raabe

Chapter6: Corporations: Redemptions And Liquidations

Section: Chapter Questions

Problem 36CE

See similar textbooks

Similar questions

A parent company buys bonds on the open market that had been previously issued by its subsidiary. The price paid by the parent is less than the carrying amount of the bonds on the subsidiary’s records. How should the parent report the difference between the price paid and the carrying amount of the bonds on its consolidated financial statements? As a loss on retirement of the bonds. As a gain on retirement of the bonds. As an increase to interest expense over the remaining life of the bonds. Because the bonds now represent intra-entity debt, the difference is not reported.
A parent company acquires from a third party bonds that had been issued originally by one of its subsidiaries. What accounting problems are created by this purchase?
ntercompany debt that must be eliminated from consolidated financial statements may result from: a. one member of a consolidated group selling its bonds directly to another member of the group. b. one member of a consolidated group advancing funds to another member of the group so that the member may retire bonds it had issued to outside parties. c. one member of a consolidated group purchasing bonds from outside parties as an investment that had been issued to outside parities by another member of the group. d. all of the above.
A subsidiary has a debt outstanding that was originally issued at a discount. At the beginning of the current year, the parent company acquired the debt at a slight premium from outside parties. Which of the following statements is true?a. Whether the balances agree or not, both the subsequent interest income and interest expense should be reported in a consolidated income statement.b. The interest income and interest expense will agree in amount and should be offset for consolidation purposes.c. In computing any noncontrolling interest allocation, the interest income should be included but not the interest expense.d. Although subsequent interest income and interest expense will not agree in amount, both balances should be eliminated for consolidation purposes.
A parent company acquires from a third party bonds that had been issued originally by one of its subsidiaries. Why is the consolidation process simpler if the bonds had been acquired directly from the subsidiary than from a third party?
The motivation of a parent company to purchase the outstanding bonds of a subsidiary could be to: a. replace the existing debt with new debt at a lower interest rate. b. reduce the parent company's acquisition price for the subsidiary. c. increase the parent company's ownership percentage in the subsidiary. d. create interest revenue to offset interest expense in future income statements.
When one member of a consolidated group purchases only part of the outstanding bonds of another member of the group, for example, 80% of the bonds, __________________ Select one: a.all bonds, and all the interest expense and interest revenue applicable to the bonds should be eliminated. b.none of the bonds, and none of the interest expense and interest revenue applicable to the bonds should be eliminated. c.80% of the bonds, and 80% the interest expense and interest revenue applicable to the bonds should be eliminated. d.20% of the bonds, and 20% the interest expense and interest revenue applicable to the bonds should be eliminated.
Western Die-Casting Company holds an investment in unsecured bonds of LGB Heating Equipment, Inc. When the investment was acquired, management’s intention was to hold the bonds for resale. Now management has the positive intent and ability to hold the bonds to maturity. How should the reclassification of the investment be accounted for?
When a company acquires an affiliated company’s debt instruments from a third party, how is the gain or loss on extinguishment of the debt calculated? When should this balance be recognized?
Western Die-Casting Company holds an investment in unsecured bonds of LGB Heating Equipment, Inc. Whenthe investment was acquired, management’s intention was to hold the bonds for resale. Now management has thepositive intent and ability to hold the bonds to maturity. How should Western account for the reclassification ofthe investment?
A member of a consolidated group may sell its bond directly to another member of the group. This would result in an intercompany debt that must be eliminated from the consolidated statements. Another avenue is for the parent to purchase the subsidiary bonds from outside parties and hold the bonds as an investment. Using the above information discuss the ramifications the purchase of intercompany bonds would have when consolidating under the two options described above.
7. Intercompany debt that must be eliminated from consolidated financial statements may result from: a. one member of a consolidated group selling its bonds directly to another member of the b. one member of a consolidated group purchasing bonds from outside parties as an investment that had been issued to outside parities by another member of the group. group. c. all of the above. santong you mostalni ar 1911c 160 d. one member of a consolidated group advancing funds to another member of the group so that the member may retire bonds it had issued to outside parties.