江西财经大学高级财务会计国际学院题库chapter_07

1、Advanced Accounting, 11e (Beams/Anthony/Bettinghaus/Smith)Chapter 7 Intercompany Profit Transactions - BondsMultiple Choice Questions1) If the price paid by a parent company to acquire the debt of a subsidiary is greater than the book value of the liability, a occurs.A) realized loss on the retireme

2、nt of debt from the viewpoint of the subsidiaryB) realized gain on the retirement of debt from the viewpoint of the subsidiaryC) constructive loss on the retirement of debt from the viewpoint of the consolidated entityD) constructive gain on the retirement of debt from the viewpoint of the consolida

3、ted entityAnswer:CObjective: LO1Difficulty:Easy2) If an affiliate purchases bonds in the open market, the book value of the intercompany bond liability at the time of purchase isA) always assigned to the parent company because it has control.B) the par value of the bonds less the unamortized discoun

4、t or plus the unamortized premium.C) par value.D) the par value of the bonds plus the unamortized discount or less the unamortized premium.Answer:BObjective: LO1Difficulty:Easy3) Bonds issued by a company remain on their books as a liability, but are considered constructively retired whenA) the comp

5、any borrows money from unaffiliated entities to re-purchase its own bonds at a gain.B) The company borrows money from an affiliate to re -purchase its own bonds at a gain.C) The companys parent or subsidiary purchases the bonds from outside entities.D) The company borrows money from an affiliate to

6、repurchase its own bonds at a gain or at a loss.Answer:CObjective: LO1Difficulty:EasyUse the following information to answer the question(s) below.Pascalian Company owns a 90% interest in Sapp Company. On January 1,2010, Pascalian had $300,000, 6% bonds outstanding with an unamortized premium of $9,

7、000. The bonds mature on December 31, 2014.Sapp acquired one -third of Pascalians bonds in the open market for $97,000 on January 1,2010.Bothcompanies use straight -line amortization of bond discounts/premiums.Interest is paid on December 31.On December 31, 2010, the books of the two affiliates held

8、 the following balances:Pascalians books6% bonds payable$300,000Premium on bonds7,200Interest expense16,200Sapps booksInvestment in Pascalian bonds$ 97,600Interest income6,6004) The gain from the bond purchase that appeared on the December 31, 2010 consolidated income statement wasA) $4,320.B) $4,80

9、0.C) $5,400.D) $6,000.Answer:DExplanation:D)Book value of Pascalians bondsacquired by Sapp equals 1/3times ($300,000 + $9,000)$103,000Less: Cost of acquiringPascalian bonds( 97,000)Constructive gain on bonds$ 6,000Objective: LO2Difficulty:Moderate5) Consolidated Interest Expense and consolidated Int

10、erest Income, respectively, that appeared on the consolidated income statement for the year ended December 31, 2010 wasA) $10,800 and $0.B) $10,800 and $6,600.C) $0 and $0.D) $16,200 and $6,600.Answer:AExplanation:A) Consolidated interest expense =$16,200 X 2/3$10,800Objective: LO2Difficulty:Moderat

11、e6) Prussia Corporation owns 80% the voting stock of Stad Corporation. On January 1, 2010, Prussia paid $391,000 cash for $400,000 par of Stads 10% $1,000,000 par value outstanding bonds, due on April 1, 2015. Stads bonds had a book value of $1,045,000 on January 1, 2010. Straight -line amortization

12、 is used. The gain or loss on the constructive retirement of $400,000 of Stad bonds on January 1, 2010 was reported in the 2010 consolidated income statement in the amount ofA) $14,000.B) $21,600.C) $23,000.D) $27,000.Answer:DObjective: LO2Difficulty:ModerateUse the following information to answer t

13、he question(s) below.Pfadt Inc. had $600,000 par of 8% bonds payable outstanding on January 1, 2011 due January 1, 2015 with an unamortized discount of $12,000. Senat is a 90% -owned subsidiary of Pfadt. On January 2, 2011, Senat Corporation purchased $150,000 par value of Pfadts outstanding bonds f

14、or $152,000. The bonds have interest payment dates of January 1 and July 1. Straight -line amortization is used.7) With respect to the bond purchase, the consolidated income statement of Pfadt Corporation and Subsidiary for 2011 showed a gain or loss ofA) $ 4,500.B) $ 5,000.C) $10,800.D) $12,000.Ans

15、wer:BExplanation:B) ($588,000 x0.25) -$152,000Objective: LO2Difficulty:Moderate8) Bond Interest Receivable for 2011 of Pfadts bonds on Senats books wasA) $5,400.B) $6,000.C) $10,800.D) $12,000.Answer:BExplanation:B) $150,000 x8% x 1/2Objective: LO2Difficulty:Moderate9) Bonds Payable appeared in the

16、December 31, 2011 consolidated balance sheet of Pfadt Corporation and Subsidiary in the amount ofA) $398,925.B) $441,000.C) $443,250.D) $450,000.Answer:CExplanation:C) $591,000 X75%Objective: LO2Difficulty:ModerateUse the following information to answer the question(s) below.Plenty Corporation issue

17、d six thousand, $1,000 par, 6% bonds on January 1, 2010, at par. Interest is paid on January 1 and July 1 of each year; the bonds mature on January 1,2015. On January 2, 2012, Scrawn Corporation, a 75% -owned subsidiary of Plenty, purchased 3,000 of the bonds on the open market at 102.50. Plentys se

18、parate net income for 2012 included the annual interest expense for all 3,000 bonds. Scrawns separate net income for 2012 was $400,000, which included the bond interest received on July 1 as well as the accrual of bond interest revenue earned on December 31. Both companies use straight-lineamortizat

19、ion of bond discounts/premiums.10) What was the amount of gain or (loss) from the intercompany purchase of Plentys bonds on January 2,2012?A) $(56,250)B) $(75,000)C) $ 75,000D) $ 56,250Answer:BExplanation:B)Total book value acquired =$6,000,000 X50%$3,000,000Purchase price 3,000x $1,0253,075,000Loss

20、 on constructive retirement$75,000Objective: LO2Difficulty:Moderate11) If the bonds were originally issued at 106, and 80% of them were purchased by Scrawn on January 2, 2013 at 98, the gain or (loss) from the intercompany purchase wasA) $(384,000).B) $(211,200).C) $ 211,200.D) $ 384,000.Answer:CExp

21、lanation:C)Book value at January 2, 2013 equals$6,360,000 minus $216,000=$6,144,000Percentage of bonds acquired 80%Equals book value acquired4,915,200Purchase price 4,800 bondsx$980=4,704,000Gain on constructive retirement =$211,200Objective: LO2Difficulty:Moderate12) If the bonds were originally is

22、sued at 103, and 70% of them were purchased on January 2, 2014 at 104, the constructive gain or (loss) on the purchase wasA) $(142,800).B) $( 42,000).C) $ 42,000.D) $ 142,800.Answer:AExplanation:A)Book value at January 2, 2014 equals$6,180,000 minus $144,000$6,036,000Percentage of bonds acquired 70%

23、Equals book value acquired4,225,200Purchase price 4,200 bondsx$1,0404,368,000Loss on constructive retirement$142,800Objective: LO2Difficulty:Moderate13) Using the original information, the amount of consolidated Interest Expense for 2012 wasA) $ 135,000.B) $ 180,000.C) $ 270,000.D) $ 360,000.Answer:

24、BExplanation:B) ($6,000,000 - $3,000,000) x6%Objective: LO2Difficulty:Moderate14) Using the original information, the balances for the Bonds Payable and Bond Interest Payable accounts, respectively, on the consolidated balance sheet for December 31, 2013 wereA) $3,000,000 and $ 90,000.B) $3,000,000

25、and $180,000.C) $6,000,000 and $ 90,000.D) $6,000,000 and $180,000.Answer:AExplanation:A) Bonds payable $6,000,000 minus bonds held by Scrawn of $3,000,000. Interest accruedon December 31, 2013 will be the interest on bonds held by non -affiliates or $3,000,000x6% X1/2 yearObjective: LO2, 3Difficult

26、y:Moderate15) Using the original information, the elimination entries on the consolidation working papers preparedon December 31, 2012 included at leastA) debit to Bond Interest Expense for $360,000.B) credit to Bond Interest Expense for $180,000 and a debit to Bond Interest Payable for $90,000.C) c

27、redit to Bond Interest Receivable for $180,000.D) debit to Bond Interest Revenue for $360,000.Answer:BObjective: LO2Difficulty:Moderate16) No constructive gain or loss arises from the purchase of an affiliates bonds if theA) affiliate is a 100% -owned subsidiary.B) bonds are purchased at book value.

28、C) bonds are purchased with arms -length bargaining from outside entities.D) gain or loss cannot be reasonably estimated.Answer:BObjective: LO1Difficulty:Easy17) There are several theories for allocating constructive gains or losses between purchasing and issuing affiliates. The Agency TheoryA) does

29、 so based on the par value of the bonds purchased.B) assigns the entire constructive gain or loss to the parent based on their control of the decision to purchase the bonds.C) assigns the entire constructive gain or loss to the subsidiary based on the need to have the noncontrolling interest share i

30、n the retirement of the debt.D) assigns the entire constructive gain or loss to whichever company issued the bonds.Answer:DObjective: LO1Difficulty:Easy18) Pickle Incorporated acquired a $10,000 bond originally issued by its 80%-owned subsidiary onJanuary 2, 2011. The bond was issued in a prior year

31、 for $11,250, matures January 1,2016, and pays 9% interest at December 31. The bonds book value at January 2, 2011 is $10,625, and Pickle paid $9,500 to purchase it. Straight -line amortization is used by both companies. How much interest income should be eliminated in 2011?A)$720B)$800C)$900D) $1,0

32、00Answer:DExplanation:D) $9,500 - $10,000 = discount to amortize as interest expense over 5 years, or $100 per year+ $900 paid by issuer.Objective: LO2, 3Difficulty:ModerateUse the following information to answer the question(s) below.Poe Corporation owns an 80% interest in Seri Company acquired at

33、book value several years ago. On January 2, 2011, Seri purchased $100,000 par of Poes outstanding 10% bonds for $103,000. The bonds were issued at par and mature on January 1, 2014. Straight -line amortization is used. Separate incomes of Poe and Seri for 2011 are $350,000 and $120,000, respectively

34、. Poe uses the equity method to account for the investment in Seri.19) Controlling interest share of consolidated net income for 2011 was A) $443,600.B) $444,000.C) $444,400.D) $448,000.Answer:BExplanation:B)Poes separate income$ 350,000Income from Seri ($120,000X80%)96,000Less: Loss on constructive

35、 retirement of Poe bonds(3,000)Plus: Piecemeal recognition of the constructive loss ($3,000/3 years)1,000Controlling interest share$ 444,000Objective: LO4Difficulty:Moderate20) Noncontrolling interest share for 2011 wasA) $23,000.B) $23,600.C) $24,000.D) $24,400.Answer:CExplanation:C) Since Poe is t

36、he issuing entity, the gain or loss is not allocated to the noncontrollinginterest. The noncontrolling interest share is ($120,000X20%) = $24,000.Objective: LO4Difficulty:ModerateExercises1) Separate company and consolidated income statements for Pitta and Sojourn Corporations for the year ended Dec

37、ember 31,2011 are summarized as follows:PittaSoujournConsolidatedSales Revenue$ 500,000$ 100,000$ 600,000Income from Sojourn19,900Bond interest income6,000Gain on bond retirement3,000Total revenues519,900106,000603,000Cost of sales$ 280,000$ 50,000$ 330,000Bond interest expense9,0003,600Other expens

38、es120,90031,000151,900Total expenses409,90081,000485,500Consolidated net income117,500Noncontrolling interest share7,500Separate net income andControl. interest share inconsolidated net income$ 110 000$ 25 000$ 110 000The interest income and expense eliminations relate to a $100,000, 9% bond issue t

39、hat was issued at par value and matures on January 1, 2016. On January 2, 2011, a portion of the bonds was purchased and constructively retired.Required: Answer the following questions.1. Which company is the issuing affiliate of the bonds payable?2. What is the gain or loss from the constructive re

40、tirement of the bonds payable that is reported on the consolidated income statement for 2011?3. What portion of the bonds payable is held by nonaffiliates at December 31,2011?4. Is Sojourn a wholly -owned subsidiary? If not, what percentage does Pitta own?5. Does the purchasing affiliate use straigh

41、t -line or effective interest amortization?6. Explain the calculation of Pittas $19,900 income from Sojourn.Answer:1. Pitta is the issuing affiliate.2. Effect on consolidated net income:Gain on constructive retirement of bonds$ 3,0003. Percent of bonds held by nonaffiliates at December 31,2011 is 40

42、%, computed as $3,600 consolidated interest expense divided by $9,000 interest expense of Pitta.4. Sojourn is partially owned as evidenced by the noncontrolling interest share. The ownership percentage is 70% ($7,500 noncontrolling interest share divided by $25,000 income of Sojourn= 30%noncontrolli

43、ng interest.)5. Straight -line amortization$100,000 par X60% purchased$60,000Purchase price 5 years before maturity57,000Gain3,000Nominal interest ($60,000 x 9%)$ 5,400Discount amortization ($3,000/5 years)600Bond interest income$ 6,0006. Pittas income from SojournShare of Sojourns reported income($

44、25,000 X70%) =$17,500Add: Constructive gain3,000Less: Piecemeal recognition of constructivegain(600)Income from Sojourn$19,900Objective:LO1,2, 4Difficulty:Moderate2) Platts Incorporated purchased 80% of Scarab Company several years ago when the fair value equaled the book value. On January 1, 2010,

45、Scarab has $100,000 of 8% bonds that were issued at face value and have five years to maturity. Interest is paid annually on December 31. Both Platts and Scarab would use the straight -line method to amortize any premium or discount incurred in the issuance or purchase of bonds. On January 1,2011, P

46、latts purchased all of Scarabs bonds for $96,000.Required:1. Prepare the journal entries in 2011 that would be recorded by Platts and Scarab on their separate financial records.2. Prepare the consolidating working paper entries required for the year ending December 31, 2011. Answer:Requirement 1:Pla

47、tts entries:1/1/11Investment inbonds$96,000Cash$96,00012/31/11Cash8,000Interest income8,000Investment inbonds1,000Interest income1,000Scarab entries:12/31/11 Interest expense8,000Cash8,000Requirement 2:Consolidating entries:12/31/11 Bonds payable100,000Investment in bonds97,000Gain on retirement of

48、debt3,000Interest income9,000Interest expense8,000Gain on retirement of debt1,000Objective: LO2, 3Difficulty:ModeratePaka Sandra98,500200,0006,00012,0007,0007,5007,000intercompany bonds.Answer:201112/31 Bond Interest PayableBond Interest Receivable12/31 Bonds PayableInterest IncomeBond premiumIntere

49、st Expense (50% owned) Investment in Sandras BondsGain on retirement of bondsSupporting Computations:Cost of bonds to Paka ($98,500- $500)Book value acquired 1/1/2011 where $2,000 per year is amortized ($200,000 + $8,000) x50% =Gain on constructive bond retirementDebitCredit7,0007,000100,0007,5003,0

50、006,00098,5006,000$98,000104,000$6 0003) Paka Corporation owns an 80% interest in Sandra Company. Paka acquired Sandras bonds on January 2, 2011. The following information is from the adjusted trial balances at December 31,2011, at which time the bonds have three years to maturity. The bonds have in

51、terest payment dates of January 1 and July 1. Straight -line amortization is used by both companies.Investment in Sandra Bonds, $100,000 par7% Bonds payable, $200,000Bond premiumInterest expenseInterest receivableInterest incomeInterest payableRequired:Prepare the necessary consolidation working pap

52、er entries on December 31,2011 with respect to theObjective:LO2, 3Difficulty:Moderate4) Pheasant Corporation owns 80% of Sal Corporations outstanding common stock that was purchased at book value equal to fair value on January 1, 2005.Additional information:1. Pheasant sold inventory items that cost

53、 $3,000 to Sal during 2012 for $6,000. One-half of thismerchandise was inventoried by Sal at year -end. At December 31,2012, Sal owed Pheasant $2,000 on account from the inventory sales. No other intercompany sales of inventory have occurred since Pheasant acquired its interest in Sal.2. Pheasant so

54、ld equipment with a book value of $5,000 and a 5 -year useful life to Sal for $10,000 on December 31, 2010. The equipment remains in use by Sal and is depreciated by the straight-line method.The equipment has no salvage value.3. On January 2, 2012, Sal paid $10,800 for $10,000 par value of Pheasants 10 -year, 10% bonds. These bonds were originally sold at par value, and have interest payment dates of January 1 and July 1, and mature on January 1, 2016. Straight