Interest income and expense: When intercompany sale of bonds takes place between affiliates, all effects of intercompany indebtedness must be eliminated for the purpose of consolidated financial statements, as a company cannot report an investment in its own bonds or bond liability to itself. When the nominal interest rate is different from yield demanded, the bond is sold at discount or premium. In this case, the amount of bond interest income or expense recorded will not be equal, in this case, the interest receipt and payment is adjusted for the amortization of the discount or premium. If the bonds purchased by S were at par or premium.

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Answer 1

Question

Chapter 8, Problem 8.4C

a

To determine

Interest income and expense: When intercompany sale of bonds takes place between affiliates, all effects of intercompany indebtedness must be eliminated for the purpose of consolidated financial statements, as a company cannot report an investment in its own bonds or bond liability to itself. When the nominal interest rate is different from yield demanded, the bond is sold at discount or premium. In this case, the amount of bond interest income or expense recorded will not be equal, in this case, the interest receipt and payment is adjusted for the amortization of the discount or premium.

If the bonds purchased by S were at par or premium.

b

To determine

Interest income and expense: When intercompany sale of bonds takes place between affiliates, all effects of intercompany indebtedness must be eliminated for the purpose of consolidated financial statements, as a company cannot report an investment in its own bonds or bond liability to itself. When the nominal interest rate is different from yield demanded, the bond is sold at discount or premium. In this case, the amount of bond interest income or expense recorded will not be equal, in this case, the interest receipt and payment is adjusted for the amortization of the discount or premium.

if the subsidiary bonds were originally sold at premium or discount, will annual interest payment received by S is more or less than interest expense. How is the difference between interest income recorded by S and how interest expense is recorded by subsidiary.

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Suppose the following two independent investment opportunities are available to Fitz, Inc. The appropriate discount rate is 12%. Year Project Gamma Project Theta 0 -$2,500 -$4,100 1 1,300 800 2 1,100 2,100 3 900 3,600 Calculate the profitability index (PI) for each project. Which project should the company accept based on the PI rule? Consider the following cash flows on two mutually exclusive projects for a company. Both projects require an annual return of 15%. Year Project A Project B 0 -$725,500 -$1,450,900 1 275,000 889,000 2 413,800 647,330 3 382,075 554,280 As a financial analyst for the company, you are asked the following questions: If your decision rule is to accept the project with the higher IRR, which project should you choose? Because you are fully aware of the scale problem associated with IRR rule, you calculate the incremental IRR for the cash flows. Based on your…

Answer 2

Question

Chapter 8, Problem 8.4C

a

To determine

Interest income and expense: When intercompany sale of bonds takes place between affiliates, all effects of intercompany indebtedness must be eliminated for the purpose of consolidated financial statements, as a company cannot report an investment in its own bonds or bond liability to itself. When the nominal interest rate is different from yield demanded, the bond is sold at discount or premium. In this case, the amount of bond interest income or expense recorded will not be equal, in this case, the interest receipt and payment is adjusted for the amortization of the discount or premium.

If the bonds purchased by S were at par or premium.

b

To determine

Interest income and expense: When intercompany sale of bonds takes place between affiliates, all effects of intercompany indebtedness must be eliminated for the purpose of consolidated financial statements, as a company cannot report an investment in its own bonds or bond liability to itself. When the nominal interest rate is different from yield demanded, the bond is sold at discount or premium. In this case, the amount of bond interest income or expense recorded will not be equal, in this case, the interest receipt and payment is adjusted for the amortization of the discount or premium.

if the subsidiary bonds were originally sold at premium or discount, will annual interest payment received by S is more or less than interest expense. How is the difference between interest income recorded by S and how interest expense is recorded by subsidiary.

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Answer 3

Question

Chapter 8, Problem 8.4C

a

To determine

Interest income and expense: When intercompany sale of bonds takes place between affiliates, all effects of intercompany indebtedness must be eliminated for the purpose of consolidated financial statements, as a company cannot report an investment in its own bonds or bond liability to itself. When the nominal interest rate is different from yield demanded, the bond is sold at discount or premium. In this case, the amount of bond interest income or expense recorded will not be equal, in this case, the interest receipt and payment is adjusted for the amortization of the discount or premium.

If the bonds purchased by S were at par or premium.

b

To determine

Interest income and expense: When intercompany sale of bonds takes place between affiliates, all effects of intercompany indebtedness must be eliminated for the purpose of consolidated financial statements, as a company cannot report an investment in its own bonds or bond liability to itself. When the nominal interest rate is different from yield demanded, the bond is sold at discount or premium. In this case, the amount of bond interest income or expense recorded will not be equal, in this case, the interest receipt and payment is adjusted for the amortization of the discount or premium.

if the subsidiary bonds were originally sold at premium or discount, will annual interest payment received by S is more or less than interest expense. How is the difference between interest income recorded by S and how interest expense is recorded by subsidiary.

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Answer 4

Question

Chapter 8, Problem 8.4C

a

To determine

Interest income and expense: When intercompany sale of bonds takes place between affiliates, all effects of intercompany indebtedness must be eliminated for the purpose of consolidated financial statements, as a company cannot report an investment in its own bonds or bond liability to itself. When the nominal interest rate is different from yield demanded, the bond is sold at discount or premium. In this case, the amount of bond interest income or expense recorded will not be equal, in this case, the interest receipt and payment is adjusted for the amortization of the discount or premium.

If the bonds purchased by S were at par or premium.

b

To determine

Interest income and expense: When intercompany sale of bonds takes place between affiliates, all effects of intercompany indebtedness must be eliminated for the purpose of consolidated financial statements, as a company cannot report an investment in its own bonds or bond liability to itself. When the nominal interest rate is different from yield demanded, the bond is sold at discount or premium. In this case, the amount of bond interest income or expense recorded will not be equal, in this case, the interest receipt and payment is adjusted for the amortization of the discount or premium.

if the subsidiary bonds were originally sold at premium or discount, will annual interest payment received by S is more or less than interest expense. How is the difference between interest income recorded by S and how interest expense is recorded by subsidiary.

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Answer 5

Chapter 8, Problem 8.4C

a

To determine

Interest income and expense: When intercompany sale of bonds takes place between affiliates, all effects of intercompany indebtedness must be eliminated for the purpose of consolidated financial statements, as a company cannot report an investment in its own bonds or bond liability to itself. When the nominal interest rate is different from yield demanded, the bond is sold at discount or premium. In this case, the amount of bond interest income or expense recorded will not be equal, in this case, the interest receipt and payment is adjusted for the amortization of the discount or premium.

If the bonds purchased by S were at par or premium.

b

To determine

Interest income and expense: When intercompany sale of bonds takes place between affiliates, all effects of intercompany indebtedness must be eliminated for the purpose of consolidated financial statements, as a company cannot report an investment in its own bonds or bond liability to itself. When the nominal interest rate is different from yield demanded, the bond is sold at discount or premium. In this case, the amount of bond interest income or expense recorded will not be equal, in this case, the interest receipt and payment is adjusted for the amortization of the discount or premium.

if the subsidiary bonds were originally sold at premium or discount, will annual interest payment received by S is more or less than interest expense. How is the difference between interest income recorded by S and how interest expense is recorded by subsidiary.

Answer 6

Chapter 8, Problem 8.4C

a

To determine

Interest income and expense: When intercompany sale of bonds takes place between affiliates, all effects of intercompany indebtedness must be eliminated for the purpose of consolidated financial statements, as a company cannot report an investment in its own bonds or bond liability to itself. When the nominal interest rate is different from yield demanded, the bond is sold at discount or premium. In this case, the amount of bond interest income or expense recorded will not be equal, in this case, the interest receipt and payment is adjusted for the amortization of the discount or premium.

If the bonds purchased by S were at par or premium.

Answer 7

Chapter 8, Problem 8.4C

a

To determine

Interest income and expense: When intercompany sale of bonds takes place between affiliates, all effects of intercompany indebtedness must be eliminated for the purpose of consolidated financial statements, as a company cannot report an investment in its own bonds or bond liability to itself. When the nominal interest rate is different from yield demanded, the bond is sold at discount or premium. In this case, the amount of bond interest income or expense recorded will not be equal, in this case, the interest receipt and payment is adjusted for the amortization of the discount or premium.

If the bonds purchased by S were at par or premium.

Answer 8

b

To determine

Interest income and expense: When intercompany sale of bonds takes place between affiliates, all effects of intercompany indebtedness must be eliminated for the purpose of consolidated financial statements, as a company cannot report an investment in its own bonds or bond liability to itself. When the nominal interest rate is different from yield demanded, the bond is sold at discount or premium. In this case, the amount of bond interest income or expense recorded will not be equal, in this case, the interest receipt and payment is adjusted for the amortization of the discount or premium.

if the subsidiary bonds were originally sold at premium or discount, will annual interest payment received by S is more or less than interest expense. How is the difference between interest income recorded by S and how interest expense is recorded by subsidiary.

Answer 9

b

To determine

Interest income and expense: When intercompany sale of bonds takes place between affiliates, all effects of intercompany indebtedness must be eliminated for the purpose of consolidated financial statements, as a company cannot report an investment in its own bonds or bond liability to itself. When the nominal interest rate is different from yield demanded, the bond is sold at discount or premium. In this case, the amount of bond interest income or expense recorded will not be equal, in this case, the interest receipt and payment is adjusted for the amortization of the discount or premium.

if the subsidiary bonds were originally sold at premium or discount, will annual interest payment received by S is more or less than interest expense. How is the difference between interest income recorded by S and how interest expense is recorded by subsidiary.

Answer 10

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Answer 13

Ch. 8 - Prob. 8.1Q Ch. 8 - What is meant by a constructive bond retirement in...Ch. 8 - Prob. 8.3Q Ch. 8 - Prob. 8.4Q Ch. 8 - When a parent company sells land to a subsidiary...Ch. 8 - Prob. 8.7Q Ch. 8 - Prob. 8.8Q Ch. 8 - Prob. 8.9Q Ch. 8 - Prob. 8.10Q Ch. 8 - Prob. 8.11Q

Solution Summary: The author explains that when intercompany sale of bonds takes place between affiliates, all effects of indebtedness must be eliminated for the purpose of consolidated financial statements.

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