1/ An affiliated company (i.e., Parent) purchases bonds from outside parties. The bonds were originally issued by another member of the consolidated group (i.e., Subsidiary). Elimination procedures are:a. not needed except in the period of acquisition if only a portion of the outstanding bonds are purchasedb. needed each period as long as there are intercompany bondsc. not needed except in the period of acquisition if purchased at a premium or discountd. not needed except in the period of acquisition if purchased at par 2/In 2020, the parent company purchased bonds (issued by the subsidiary) from outside parties. In subsequent years (2021 and after), the consolidated income statements:a. recognize a prorated share of any gain but would not show a share of a loss from intercompany bondsb. recognize a prorated share of any loss but would not show a share of a gain from intercompany bondsc. would not recognize any gain or loss from intercompany bonds.d. recognize a prorated share of any gain or loss from intercompany bonds.

Reasons 1/ Elimination procedures for intercompany bonds purchased from an outsider party, issued by…

Answered: 1/ An affiliated company (i.e., Parent)…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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1/ An affiliated company (i.e., Parent) purchases bonds from outside parties. The bonds were originally issued by another member of the consolidated group (i.e., Subsidiary). Elimination procedures are:

a. not needed except in the period of acquisition if only a portion of the outstanding bonds are purchased

b. needed each period as long as there are intercompany bonds

c. not needed except in the period of acquisition if purchased at a premium or discount

d. not needed except in the period of acquisition if purchased at par

In 2020, the parent company purchased bonds (issued by the subsidiary) from outside parties. In subsequent years (2021 and after), the consolidated income statements:

a. recognize a prorated share of any gain but would not show a share of a loss from intercompany bonds

b. recognize a prorated share of any loss but would not show a share of a gain from intercompany bonds

c. would not recognize any gain or loss from intercompany bonds.

d. recognize a prorated share of any gain or loss from intercompany bonds.

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