EBK ADVANCED FINANCIAL ACCOUNTING
11th Edition
ISBN: 8220102796096
Author: Christensen
Publisher: YUZU
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Chapter 8, Problem 8.3Q
To determine
Debt service funds: It is an account for the accumulation and use of resources for the payment of general long-term debt principle and interest. Some governmental entities service long-term debt from general fund, thereby eliminating the need of debt service fund. For accounting and financial reporting for debt service, fund modified accrual basis of accounting is used. In this, only the portion of matured long term debt and payable in current year is recorded in debt service funds.
To explain : accounting treatment of debt service fund.
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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.
Which is an incorrect scenario on covenants?a. The issuing firms pursued revenue generating projects to ensure payment of the interest and theprincipal on a timely basis.b. The issuing firm disposes a mortgage on a bond to settle other creditors’ claims to prevent insolvency.c. The issuing firm submitted periodic reports to the trustee bank to fulfill the loan agreement.d. The issuing firm disposed the collateral to settle the agreement with the bondholders.e. B & Df. All of the aboveg. None of the above
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Chapter 8 Solutions
EBK ADVANCED FINANCIAL ACCOUNTING
Ch. 8 - Prob. 8.1QCh. 8 - What is meant by a constructive bond retirement in...Ch. 8 - Prob. 8.3QCh. 8 - Prob. 8.4QCh. 8 - When a parent company sells land to a subsidiary...Ch. 8 - Prob. 8.7QCh. 8 - Prob. 8.8QCh. 8 - Prob. 8.9QCh. 8 - Prob. 8.10QCh. 8 - Prob. 8.11Q
Ch. 8 - How is the amount of income assigned to the...Ch. 8 - Prob. 8.13QCh. 8 - How would the relationship between interest income...Ch. 8 - Prob. 8.15QCh. 8 - Prob. 8.16QCh. 8 - Prob. 8.17QCh. 8 - Prob. 8.18QCh. 8 - Prob. 8.1CCh. 8 - Prob. 8.2CCh. 8 - Prob. 8.4CCh. 8 - Prob. 8.1ECh. 8 - Prob. 8.1AECh. 8 - Prob. 8.2ECh. 8 - Prob. 8.2AECh. 8 - Prob. 8.3ECh. 8 - Prob. 8.3AECh. 8 - Prob. 8.4ECh. 8 - Prob. 8.5.1ECh. 8 - Prob. 8.5.2ECh. 8 - MultipleChoice Questions (Effective Interest...Ch. 8 - Prob. 8.5.4ECh. 8 - Prob. 8.5.5ECh. 8 - Prob. 8.5.6ECh. 8 - Prob. 8.5A.1ECh. 8 - Prob. 8.5A.2ECh. 8 - Prob. 8.5A.3ECh. 8 - Prob. 8.5A.4ECh. 8 - Prob. 8.6.1ECh. 8 - Prob. 8.6.2ECh. 8 - MultipleChoice Questions (Effective Interest...Ch. 8 - Prob. 8.6A.1ECh. 8 - Prob. 8.6A.2ECh. 8 - Prob. 8.6A.3ECh. 8 - Prob. 8.7ECh. 8 - Prob. 8.7AECh. 8 - Prob. 8.8ECh. 8 - Prob. 8.8AECh. 8 - Retirement of Bonds Sold at a Discount (Effective...Ch. 8 - Prob. 8.9AECh. 8 - Prob. 8.10ECh. 8 - Prob. 8.10AECh. 8 - Prob. 8.11ECh. 8 - Prob. 8.11AECh. 8 - Evaluation of Bond Retirement (Effective Interest...Ch. 8 - Prob. 8.12AECh. 8 - Prob. 8.13ECh. 8 - Prob. 8.13AECh. 8 - Prob. 8.14PCh. 8 - Prob. 8.15PCh. 8 - Prob. 8.15APCh. 8 - Prob. 8.16PCh. 8 - Prob. 8.16APCh. 8 - Prob. 8.17PCh. 8 - Prob. 8.17APCh. 8 - Prob. 8.18PCh. 8 - Prob. 8.18APCh. 8 - Prob. 8.19APCh. 8 - Prob. 8.20PCh. 8 - Prob. 8.20APCh. 8 - Prob. 8.21PCh. 8 - Prob. 8.21APCh. 8 - Prob. 8.22BPCh. 8 - Prob. 8.22APCh. 8 - Prob. 8.23PCh. 8 - Prob. 8.24PCh. 8 - Prob. 8.25PCh. 8 - Prob. 8.25APCh. 8 - Prob. 8.26PCh. 8 - Prob. 8.26APCh. 8 - Prob. 8.27B.1PCh. 8 - Prob. 8.27B.2PCh. 8 - Prob. 8.27B.3PCh. 8 - Prob. 8.27B.4PCh. 8 - Prob. 8.27B.5PCh. 8 - Prob. 8.27B.6PCh. 8 - Prob. 8.27B.7PCh. 8 - Prob. 8.27B.8PCh. 8 - Prob. 8.27B.9PCh. 8 - Prob. 8.27B.10PCh. 8 - Prob. 8.28PCh. 8 - Prob. 8.28APCh. 8 - Prob. 8.29BPCh. 8 - Prob. 8.30BP
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- Why must the eliminating entries be entered in the consolidation worksheet each time consolidated statements are prepared?How is the beginning-of-period non-controlling interest balance determined?How is the end-of-period non-controlling interest balance determined? Provide an example.arrow_forward1/ 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 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 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…arrow_forwardWhich of the following is NOT included in the cost of an acquired company? (applying section 19 of IFRS for SMEs) a. Contingent consideration determinable at the consummation date of the combination b. Finder’s fee for arranging the combination c. Cost of registering and issuing equity securities d. None of the abovearrow_forward
- Which of the following should appear in consolidated financial statements? a. All intercompany transactions properly recorded on each affiliate’s books. b. Transactions between the consolidated company and outside parties. c. Transactions not accounted for by the simple equity method. d. Lease transactions between a parent and subsidiary.arrow_forwardWhat merger-related activities are undertaken byinvestment bankers?arrow_forwardwhat is a good response to this post? Why must the eliminating entries be entered in the consolidation worksheet each time consolidated statements are prepared? Eliminating entries are crucial in the consolidation worksheet because they ensure that any intercompany transactions and balances are removed from the consolidated financial statements. This prevents double counting and provides a clear and accurate representation of the consolidated entity’s financial position. For instance, if a parent company and its subsidiary have intercompany sales, the revenue recorded by the parent and the corresponding expense recorded by the subsidiary must be eliminated to avoid inflating the consolidated revenues and expenses. Without these entries, the financial statements would not reflect the true economic substance of the group as a single entity (Phillips et al., 2021). How might this process under a GAAP basis compare to that under an IFRS basis? Under Generally Accepted Accounting…arrow_forward
- Under what circumstances would a transaction be recorded as a troubled-debt restructuring by only one of the two parties to the transaction?arrow_forwardThe entry to cancel the effects of the intercompany transactions in preparation of theConsolidated FinancialStatements are made on: A.the books of the subsidiaryB.The books of the parent if downstream sale, and the books of the subsidiary if upstream saleC.the books of the parentD.the working paperarrow_forwardRelated party transactions and their outstanding balances are only reported in the group’s consolidated FS. TRUE OR FALSEarrow_forward
- A 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_forwardWhich of the following items shall be cancelled on consolidation? a. Receivables related to intra-group sales b. Payables related to intra-group purchases c. Unrealised profit on intra-group transactions d. Loans related to intra-group lending e. All of the abovearrow_forward7. Intercompany 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 b. 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. group. c. all of the above. santong you mostalni ar 1911c 160 d. 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.arrow_forward
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