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 a member of the consolidated group, shall be needed in each period until the intercompany bonds exists. It is used to eliminate from the financial statements of the consolidated the transactions between the companies within the group. It enables the representation of account balances as if the parent and subsidiary are one economic entity. 2/When a parent company purchases bonds issued by its subsidiary from outside parties, then the profit or loss on the bonds of the Subsidiary purchased by the Parent company shall be recognized in the consolidated statements. The gains and losses shall be allocated between controlling and noncontrolling interests by the parent company. 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: b. needed each period as long as there are intercompany bonds 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: d. recognize a prorated share of any gain or loss from intercompany bonds.

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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