江西财经大学高级财务会计国际学院题库chapter07.docx

1、江西财经大学高级财务会计国际学院题库chapter07Advanced 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)

2、realized loss on the retirement 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 t

3、he viewpoint of the consolidated 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 bon

4、ds less the unamortized discount 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 const

5、ructively retired whenA) the company 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 bor

6、rows money from an affiliate to 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

7、 with an unamortized premium of $9,000. 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. Both companies use straight-line amortization of bond discounts/premiums. Interest is paid on December 31. On December 31, 201

8、0, the books of the two affiliates held the following balances:Pascalians books6% bonds payable $300,000Premium on bonds 7,200Interest expense 16,200Sapps booksInvestment in Pascalian bonds $ 97,600Interest income 6,6004) The gain from the bond purchase that appeared on the December 31, 2010 consoli

9、dated income statement wasA) $4,320.B) $4,800.C) $5,400.D) $6,000.Answer: DExplanation: D) Book value of Pascalians bonds acquired by Sapp equals 1/3times ($300,000 + $9,000) $103,000Less: Cost of acquiring Pascalian bonds ( 97,000)Constructive gain on bonds $ 6,000Objective: LO2Difficulty: Moderate

10、5) Consolidated Interest Expense and consolidated Interest 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 expens

11、e =$16,200 2/3 $10,800Objective: LO2Difficulty: Moderate6) 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,

12、045,000 on January 1, 2010. Straight-line amortization 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: LO2Diffi

13、culty: ModerateUse the following information to answer the 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 pur

14、chased $150,000 par value of Pfadts outstanding bonds for $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

15、loss ofA) $ 4,500.B) $ 5,000.C) $10,800.D) $12,000.Answer: BExplanation: B) ($588,000 0.25) -$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 8% 1/2Objective:

16、LO2Difficulty: Moderate9) Bonds Payable appeared in the 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 75%Objective: LO2Difficulty: ModerateUse the following informatio

17、n to answer the question(s) below.Plenty Corporation issued 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

18、,000 of the bonds on the open market at 102.50. Plentys separate 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

19、 on December 31. Both companies use straight-line amortization 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,

20、000,000 50% $3,000,000Purchase price 3,000 $1,025 3,075,000Loss 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 wa

21、sA) $(384,000).B) $(211,200).C) $ 211,200.D) $ 384,000.Answer: CExplanation: C) Book value at January 2, 2013 equals $6,360,000 minus $216,000= $6,144,000Percentage of bonds acquired 80%Equals book value acquired 4,915,200Purchase price 4,800 bonds $980= 4,704,000Gain on constructive retirement= $ 2

22、11,200Objective: LO2Difficulty: Moderate12) If the bonds were originally issued 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,

23、2014 equals $6,180,000 minus $144,000 $6,036,000Percentage of bonds acquired 70%Equals book value acquired 4,225,200Purchase price 4,200 bonds $1,040 4,368,000Loss on constructive retirement $ 142,800Objective: LO2Difficulty: Moderate13) Using the original information, the amount of consolidated Int

24、erest Expense for 2012 wasA) $ 135,000.B) $ 180,000.C) $ 270,000.D) $ 360,000.Answer: BExplanation: B) ($6,000,000 - $3,000,000) 6%Objective: LO2Difficulty: Moderate14) Using the original information, the balances for the Bonds Payable and Bond Interest Payable accounts, respectively, on the consoli

25、dated balance sheet for December 31, 2013 wereA) $3,000,000 and $ 90,000.B) $3,000,000 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 accrued on December 31, 2013 will be the inte

26、rest on bonds held by non-affiliates or $3,000,000 6% 1/2 yearObjective: LO2, 3Difficulty: Moderate15) Using the original information, the elimination entries on the consolidation working papers prepared on December 31, 2012 included at leastA) debit to Bond Interest Expense for $360,000.B) credit t

27、o Bond Interest Expense for $180,000 and a debit to Bond Interest Payable for $90,000.C) credit 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 affiliate

28、s bonds if theA) affiliate is a 100%-owned subsidiary.B) bonds are purchased at book value.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 cons

29、tructive gains or losses between purchasing and issuing affiliates. The Agency TheoryA) does 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

30、gain or loss to the subsidiary based on the need to have the noncontrolling interest share in 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 origin

31、ally issued by its 80%-owned subsidiary on January 2, 2011. The bond was issued in a prior year 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) $1,000Answer: DExplanation: D) $9,500 - $10,000 = discount to amortize as interest expense over 5 years, or $100 per year + $900 paid by issuer.Objective