Concept explainers
Bonds of affiliate purchased from non-affiliate: When an affiliate of issuer later acquires bonds form unrelated party, the bonds are retired at the time of purchase. The bonds are not held outside the consolidated entity once another company within the consolidated entity purchases them, it must be treated as repurchase by debtor. Acquisition of an affiliate’s bonds by another company with in affiliated entities is referred as constructive retirement. Although bonds are not actually retired.
When constructive retirement occurs the consolidated income statement reports gain or loss based on difference between carrying value and purchase price paid by affiliate to acquire it. And it is not reported in consolidated
To explain : what will be the effect on consolidated net income when the parent sell the bonds. When parents purchases subsidiary bonds directly from it and later sell the bonds to non-affiliate.
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ADVANCED FINANCIAL ACCOUNTING IA
- ) On an income distribution schedule, any gain or loss resulting from intercompany bonds is charged to a. the issuer of the bonds. b. the purchaser of the bonds. c. allocation between the issuer and the purchaser. d. none of the abovearrow_forwardWhat is a noncontrolling interest? Select one: A. A component of debt representing amounts owed to a subset of investors B. Amounts distributed to investors that own less than a controlling interest C. The portion of a subsidiary’s net assets not owned by the parent-company D. An amount equal to investor contributions less dividends distributedarrow_forwardA 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?arrow_forward
- How is the Non-Controlling Interest displayed in a consolidated balance sheet? a. As a separate item in the stockholder’s equity section b. By means of a note to consolidated financial statements c. As a separate item between the liabilities and stockholder’s equity d. As a deduction from goodwill, if any e. Non-controlling interest is never presented in consolidated balance sheet.arrow_forwardntercompany 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.arrow_forward5. A gain or loss may arise from which of the following? a. The initial recognition of the debt and equity components of a compound financial instrument. b. The purchase, sale, issue or cancellation of the entity's own equity instruments. c. The conversion of bonds into the entity's own equity instrument. d. The settlement of a liability at an amount below or above its carrying amount. NOT FOR SALE! StuDOcucom respective authors.arrow_forward
- 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.arrow_forwardThe share premium recognized on a convertible bond O A. remains in equity only if the bonds are actually converted В. reclassified out of equity to profit or loss if the bonds are not converted O c. remains in equity whether the bonds are actually converted or not O D. recognized as gain or loss on conversion E. becomes part of the bonds payable accountarrow_forwardHow is the Non-Controlling Interest displayed in a consolidated balance sheet? O As a separate item in the stockholder's equity section As a deduction from goodwill, if any As a separate item between the liabilities and stockholder's equity O By means of a note to consolidated financial statements O Non-controlling interest is never presented in consolidated balance sheet.arrow_forward
- How is non-controlling interest in the subsidiary’s net assets presented in the consolidated statement of financial position? a. Within equity but separately from the equity of the owners of the parents. b. Within equity as part of retained earnings. c. Any of these as a matter of accounting policy choice. d. As a mezzanine item between liabilities and equity.arrow_forwardWhen a parent company uses the equity method to account for an investment in a subsidiary, why do both the parent’s Net Income and Retained Earnings account balances agree with the consolidated totals?arrow_forwardIn question (4), why is the consolidation process simpler if the bonds had been acquired directly from the subsidiary than from a third party?arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning