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.

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.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Select the type of risk that is most evident in the pairings. Investments in Junk Bonds VS Investments in Treasury Bonds * Business Risk Default Risk Financial Risk Interest Rate Risk Liquidity Risk Management Risk Purchasing Power Risk Investment in a fix-rated bonds VS Investment in a variable-rated bond * Business Risk Default Risk Financial Risk Interest Rate Risk Liquidity Risk Management Risk Purchasing Power Risk Investment in stocks of a closely-held corporation VS Investment in stocks of a publicly listed corporation Business Risk Default Risk Financial Risk Interest Rate Risk Liquidity Risk Management Risk Purchasing Power Risk
Explain the three key variables that distinguish bonds,compare the advantages and disadvantages of owningbonds, and list the major types of bonds.
What is a derivative? Give an example. Why do companies purchase derivatives? Accounting for Derivatives One reason accounting for derivatives is so complex is that different groups have different reasons for using them and those reasons affect whether the derivatives qualify for a particular type of accounting treatment. This treatment is called hedge accounting. Another reason for the complexity is that, even if an entity qualifies for hedge accounting treatment, it may choose not to implement hedge accounting treatment. Finally, derivatives are financial instruments with a vocabulary all their own, terms often covered in higher-level finance classes but not often encountered in our day-to-day lives. Together, these characteristics make understanding the intuition and accounting for derivatives particularly challenging. Initial recognition is straightforward. A purchaser records a financial instrument asset on the balance sheet at the purchase price. The…
can a convertible bond ever result in the recognition of a gain in the income statement?
Required In relation to a convertible arbitrage trade in general, carefully explain the impact of a potential takeover/acquisition of the company that issued the convertible bond on the convertible arbitrage trade. Also, compare and contrast the effectiveness of a change of control put (at par) versus a ratchet table.
Diluted EPS would be precisely the same whether convertible securities were actually converted or not. Why?
How is the potentially dilutive effect of convertible preferred stock reflected in EPS calculations by the if-converted method? How is this different from the way convertible bonds are considered?
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?
Describe the accounting treatment for convertible debt and for debt issued with detachable stock warrants. How does the treatment differ and what justification does FASB use for requiring different treatment?.