Description of this paper

accounts data bank

Description

solution


Question

Question;1.;The;usual impetus for transactions that create a long-term debtor-creditor;relationship between members of a consolidated group is due to the;a. subsidiary's;ability to borrow larger amounts of capital at more favorable terms than would;be available to the parent.;b.;parent's ability to borrow larger amounts of capital;at more favorable terms than would be available to the subsidiary.;c. parent's;desire to decentralize asset management and credit control.;d. parent's desire to eliminate;long-term debt.;2.;The;motivation of a parent company to purchase the outstanding bonds of;a;subsidiary could be to;a.;replace the existing debt with new debt at a lower;interest rate.;b.;reduce the parent company's acquisition price for;the subsidiary.;c.;increase the parent company's ownership percentage;in the subsidiary.;d.;create interest revenue to offset interest expense;in future income statements.;3.;Company S is a 100%-owned subsidiary of Company P.;Company S has outstanding 8%, 10-year bonds sold to yield 7%. On January 1 of;the current year, Company P purchased all of the Company S outstanding bonds at;a price that reflected the current 9% effective interest rate. How should this;event be reflected in the current year's consolidated statements?;a. The bonds;remain in the balance sheet and are accounted for at a 7% effective rate.;b. The bonds;remain in the balance sheet and are accounted for at a 9% effective rate.;c. Retirement;of the bonds at an extraordinary gain as of the purchase date.;d. Retirement;of the bonds at an extraordinary loss as of the purchase date.;Chapter 5;4.;Company S is a 100%-owned subsidiary of Company P.;Company S has outstanding 6%, 10-year bonds sold to yield 7%. On January 1 of;the current year, Company P purchased all of the Company S outstanding bonds at;a price that reflected the current 9% effective interest rate. How should this;event be reflected in the current year's consolidated statements?;a. The bonds;remain in the balance sheet and are accounted for at a 7% effective rate.;b. The bonds;remain in the balance sheet and are accounted for at a 9% effective rate.;c. Retirement;of the bonds at an extraordinary gain as of the purchase date.;d. Retirement;of the bonds at an extraordinary loss as of the purchase date.;5.;Company S is a 100%-owned subsidiary of Company P.;Company S has outstanding 6%, 10-year bonds sold to yield 7%. On January 1 of;the current year, Company P purchased all of the Company S outstanding bonds at;a price that reflected the current 6% effective interest rate. How should this;event be reflected in the current year's consolidated statements?;a. The bonds;remain in the balance sheet and are accounted for at a 7% effective rate.;b. The bonds;remain in the balance sheet and are accounted for at a 9% effective rate.;c. Retirement;of the bonds at an extraordinary gain as of the purchase date.;d. Retirement;of the bonds at an extraordinary loss as of the purchase date.;6.;Intercompany debt which must be eliminated from;consolidated financial statements may results from;a. one member;of a consolidated group selling its bonds directly to another member of the;group.;b. 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.;c. 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.;d. all of the above.;5-2;Chapter 5;7.;Elimination procedures for intercompany bonds;purchased from outside parties by another member of the consolidated group are;a. not needed;except in the period of acquisition if purchased at par.;b. not needed;except in the period of acquisition if purchased at a premium or discount.;c. not needed;except in the period of acquisition if only a portion of the outstanding bonds;are purchased.;d. needed each period as long;as there are intercompany bonds.;8.;Assuming the correct bond eliminations entry(s) are;made for intercompany bonds, intercompany bond interest expense will appear on;a.;the consolidated income statement.;b.;the income statement of the bond issuer.;c.;the income statement of the bond purchaser.;d. none of the above.;9.;Assuming the correct bond eliminations entry(s) are;made for intercompany bonds, intercompany bond interest payable will appear on;a.;the consolidated balance sheet.;b.;the balance sheet of the bond issuer.;c.;the balance sheets of the bond issuer and the bond;purchaser.;d. none of the above.;10.;Company S is a 100%-owned subsidiary of Company P.;On January 1, 20X9, Company S has $200,000 of 8% face rate bonds outstanding;which were issued at face value. The bonds had 5 years to maturity on January;1, 20X9. Premiums or discounts would be amortized on a straight-line basis. On;that date, Company P purchased the bonds for $198,000. The amount on the;consolidated balance sheet relative to the debt is;a.;bonds payable $200,000.;b.;bonds payable $200,000, discount $2,000.;c.;bonds payable $200,000, discount $1,600.;d. The bonds do not appear on;the balance sheet.;11.;Company S is a 100%-owned subsidiary of Company P.;On January 1, 20X9, Company S has $100,000 of 8% face rate bonds outstanding.;The bonds had 5 years to maturity on January 1, 20X9, and had an amortized;discount of $5,000. On that date, Company P purchased the bonds for $99,000.;The net adjustment needed to consolidate retained earnings on December 31, 20X9;is __________.;a.;$(4,000);b.;$(3,200);c.;$(800);d. $0;5-3;Chapter 5;12.;Sun Company is a 100%-owned subsidiary of Peter;Company. On January 1, 20X1, Sun Company has $500,000 of 8% face rate bonds;outstanding, with an unamortized discount of $5,000 which is being amortized;over a 5 year remaining life to maturity. On that date, Peter Company purchased;the bonds for $497,000. The adjustment to the consolidated income of the two;companies needed in the consolidation process for 20X2 (the following year) is;a.;$2,800;b.;$(400);c.;$400;d. $(2,800);13. Company S is a 100%-owned;subsidiary of Company P. Company P purchased, at a premium, Company S bonds;that are outstanding and have a remaining discount. Consolidation theory takes;the position that;a.;interest expense should be adjusted to reflect the;market value of the bonds on the date of Company P's purchase.;b.;the debt has been retired at an extraordinary loss.;c.;the debt is outstanding, but should be shown at face;value.;d. the gain or;loss on retirement should be allocated over the remaining life of the bonds.;14.;Company S is a 100%-owned subsidiary of Company P.;Company P purchased all the outstanding bonds of Company S at a discount. The;bonds had a remaining issuance premium at the time of Company P's purchase. The;bonds have 5 years to maturity. At the end of 5 years, retained earnings;a.;is greater as a result of the purchase.;b.;is less as a result of the purchase.;c.;is not affected by the purchase.;d. cannot be determined from;the information provided.;15.;Company P owns 80% of Company S. On January 1, 20X9;Company S has outstanding 6% bonds with a face value of $200,000 and an;unamortized discount of $3,000, which is being amortized on a straight-line;basis over a remaining term of 10 years. On January 1, 20X9, Company P;purchased all the bonds for $205,000. The premium also is amortized on a;straight-line basis. The net impact of the purchase on the noncontrolling;interest as of December 31, 20X9, is __________.;a.;$(8,000);b.;$(1,600);c.;$(1,440);d. $(1,200);5-4;Chapter 5;16. The;purchase of outstanding subsidiary bonds by the parent company has the same;impact on consolidated statements as;a.;the subsidiary retiring its own debt with the;proceeds of new debt issued to outside parties.;b. the;subsidiary retiring the debt with the proceeds of a loan from the parent.;c. the;subsidiary retiring the debt with the proceeds of a new stock issue.;d. allowing the bonds to;continue to be held by outside interests.;17.;A subsidiary has outstanding $100,000 of 8% bonds that;were issued at face value. The parent purchased all the bonds for $96,000 with;5 years remaining to maturity. How will the parent's use of the effective;interest amortization rather than straight-line amortization of the discount;affect the consolidated statements?;a.;No impact.;b.;Will result in a different gain on retirement;c. Will result;in more interest expense in the first year after the intercompany purchase.;d. Will result;in less interest expense in the first year after the intercompany purchase.;18.;Powell Company owns an 80% interest in Sauter, Inc.;On January 1, 20X1, Sauter issued $400,000 of 10-year, 12% bonds at a premium;of $25,000. On December 31, 20X5, 5 years after original issuance, Powell;purchased all of the outstanding bonds for $390,000. Both firms use the;straight-line method of amortization.;What is the extraordinary gain on retirement on the 20X5;consolidated income statement?;a.;$12,500;b.;$22,500;c.;$10,000;d. $35,000;19.;Powell Company owns an 80% interest in Sauter, Inc.;On January 1, 20X1, Sauter issued $400,000 of 10-year, 12% bonds at a premium;of $25,000. On December 31, 20X5, 5 years after original issuance, Powell;purchased all of the outstanding bonds for $390,000. Both firms use the straight-line;method of amortization.;Bond interest expense included in the 20X5 subsidiary income;distribution schedule is __________.;a.;$48,000;b.;$45,500;c.;$47,500;d. $0

 

Paper#44460 | Written in 18-Jul-2015

Price : $22
SiteLock