LooseLeaf for Advanced Accounting (Irwin Accounting) - Standalone book
13th Edition
ISBN: 9781259444951
Author: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik
Publisher: McGraw-Hill Education
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Chapter 6, Problem 4P
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Identify the appropriate answer for the given statement from the given choices.
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Choose the correct. 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 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.
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.
Chapter 6 Solutions
LooseLeaf for Advanced Accounting (Irwin Accounting) - Standalone book
Ch. 6 - Prob. 1QCh. 6 - Prob. 2QCh. 6 - When is a firm required to consolidate the...Ch. 6 - Prob. 4QCh. 6 - Prob. 5QCh. 6 - Prob. 6QCh. 6 - Prob. 7QCh. 6 - Prob. 8QCh. 6 - Prob. 9QCh. 6 - Prob. 10Q
Ch. 6 - Prob. 11QCh. 6 - How do noncontrolling interest balances affect the...Ch. 6 - Prob. 13QCh. 6 - Prob. 14QCh. 6 - Prob. 15QCh. 6 - Prob. 16QCh. 6 - Prob. 17QCh. 6 - Prob. 1PCh. 6 - Prob. 2PCh. 6 - Prob. 3PCh. 6 - Prob. 4PCh. 6 - Prob. 5PCh. 6 - Prob. 6PCh. 6 - Problems 7 and 8 are based on the following...Ch. 6 - Prob. 8PCh. 6 - Bens man Corporation is computing EPS. One of its...Ch. 6 - Prob. 10PCh. 6 - Prob. 11PCh. 6 - Prob. 12PCh. 6 - Prob. 13PCh. 6 - Prob. 14PCh. 6 - Prob. 15PCh. 6 - Prob. 16PCh. 6 - On January 1, Coldwater Company has a net book...Ch. 6 - Prob. 18PCh. 6 - Prob. 19PCh. 6 - Prob. 20PCh. 6 - On January 1, 2018, Stamford issues 10,000...Ch. 6 - On January 1, 2018, Stamford reacquires 8,000 of...Ch. 6 - Prob. 23PCh. 6 - Prob. 24PCh. 6 - On December 31, 2017. PanTech Company invests...Ch. 6 - Prob. 26PCh. 6 - Prob. 27PCh. 6 - Prob. 28PCh. 6 - Prob. 29PCh. 6 - Prob. 30PCh. 6 - Prob. 31PCh. 6 - Prob. 32PCh. 6 - Prob. 33PCh. 6 - Prob. 34PCh. 6 - Prob. 35PCh. 6 - Alford Company and its 80 percentowned subsidiary,...Ch. 6 - Prob. 37PCh. 6 - Prob. 38PCh. 6 - Prob. 39PCh. 6 - Prob. 40PCh. 6 - Prob. 41PCh. 6 - Prob. 42PCh. 6 - Prob. 43PCh. 6 - Prob. 44PCh. 6 - Fred, Inc., and Herman Corporation formed a...Ch. 6 - Prob. 46PCh. 6 - Prob. 47PCh. 6 - Prob. 48PCh. 6 - Prob. 49PCh. 6 - Prob. 50PCh. 6 - Prob. 1DYSCh. 6 - Prob. 2DYSCh. 6 - The FASB ASC Subtopic Variable Interest Entities...
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- Which of the following statements is TRUE? a. The acquirer shall measure the identifiable assets acquired and the liabilities assumed at their acquisition-date fair value. b. Transaction costs directly related to the issue of debt instruments are deducted from the fair value of the debt on initial recognition and are amortized over the life of the debt as part of the effective interest rate. Directly attributable transaction costs incurred issuing equity instruments are deducted from revenue. c. In net asset acquisition, gain on bargain purchase is recognized in the Profit or Loss of the acquirer (after reassessment) if the consideration transferred is more than the fair value of net assets acquired. d. According to IFRS #3: Revised, cost directly attributable in effecting the business combination (e.g., finders’ fee and other direct cost) must be charged to share premium.arrow_forward17. When a debt investment at FVOCI is reclassified to FVPL, an entity willa. Remeasure the investment to the original cost and eliminate the cumulative unrealized gain or loss in OCI.b. Transfer the cumulative unrealized gain or loss to retained earningsc. The cumulative gain or loss previously recognized in OCI is reclassified to profit or loss.d. The effective rate at the date of reclassification shall be the basis for interest income to be recognized in subsequent periods.arrow_forwardChoose the correct. A company acquires a subsidiary and will prepare consolidated financial statements for external reporting purposes. For internal reporting purposes, the company has decided to apply the equity method. Why might the company have made this decision?a. It is a relatively easy method to apply.b. Operating results appearing on the parent’s financial records reflect consolidated totals.c. GAAP now requires the use of this particular method for internal reporting purposes.d. Consolidation is not required when the parent uses the equity method.arrow_forward
- Choose the correct. A company acquires a subsidiary and will prepare consolidated financial statements for external reporting purposes. For internal reporting purposes, the company has decided to apply the initial value method. Why might the company have made this decision?a. It is a relatively easy method to apply.b. Operating results appearing on the parent’s financial records reflect consolidated totals.c. GAAP now requires the use of this particular method for internal reporting purposes.d. Consolidation is not required when the parent uses the initial value method.arrow_forwardTrue or False Pls indicate if the statements are true or false. 1. The worksheet eliminations prepared subsequent to acquisition remove the allocated excess/purchase differential amortizations from the consolidated financial statements. 2. Allocated excess/purchase differential amortizations result in the Investment Income account disclosing the income that would have been allocated to the parent had the subsidiary’s financial records disclosed the market value of its assets and liabilities. 3.arrow_forward1. When preparing the consolidated financial statements, which of the followingshould be deducted from the group reserves?a) Share in associate profit b) Value of the loan from subsidiary to associate c) Group’s share of sub-subsidiary’s profit d) Value of goodwill impairment expensearrow_forward
- 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?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.arrow_forwardS1: The acquisition-related costs in a business combination to be expensedimmediately include cost of issuing debt securities. S2: In a business combination any “gain on bargain purchase” shall be recognized in other comprehensive income. A. Only S1 is correct.B. Only S2 is correct.C. Both statements are incorrect.D. Both statements are correct.arrow_forwardP Ltd bought 80% of S Ltd’s equity shares on 1 January 2016. On the date of the purchase of S Ltd's shares, among other things, S Ltd's statement of financial position contains the following: $ Retained profit 72,000 Tangible non-current assets Cost 288,000 Fair value 360,000 On the date of acquisition (of S Ltd's shares) by P Ltd, S Ltd's assets were not revalued to fair value. It is part of S Ltd's accounting policy to depreciate non-current assets on a straight-line basis for 10 years. The income statements of P Ltd and S Ltd for the year ended 31 December 2020 are as follows: P Ltd S Ltd $ $ Revenue 240,000 168,000 Cost of sales 144,000 24,000 Gross profit 96,000 144,000 Expenses 12,000 14,400 Depreciation and amortization Operating profit 24,000 28,800 60,000 100,800 9,600 50,400 Income tax 2,400 Net profit 98,400 Reserves (brought forward) Reserves (carried forward) 240,000 168,000 290,400 266,400 Note: P Ltd and S Ltd are considered to be in the same group for the purpose of…arrow_forward
- A company acquires a subsidiary and will prepare consolidated financial statements for external reporting purposes. For internal reporting purposes, the company has decided to apply the equity method. Why might the company have made this decision? It is a relatively easy method to apply. Operating results appearing on the parent’s financial records reflect consolidated totals. GAAP now requires the use of this particular method for internal reporting purposes. Consolidation is not required when the parent uses the equity method.arrow_forwardA 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?arrow_forwardA company acquires a subsidiary and will prepare consolidated financial statements for external reporting purposes. For internal reporting purposes, the company has decided to apply the initial value method. Why might the company have made this decision? It is a relatively easy method to apply. Operating results appearing on the parent’s financial records reflect consolidated totals. GAAP now requires the use of this particular method for internal reporting purposes. Consolidation is not required when the parent uses the initial value method.arrow_forward
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