Chap008 - Chapter 08 - Intercompany Indebtedness Chapter 08...

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Chapter 08 - Intercompany Indebtedness Chapter 08 Intercompany Indebtedness Multiple Choice Questions 1. Cutler Company owns 80 percent of the common stock of Marina Inc. Cutler acquires some of Marina's bonds from an unrelated party for less than the carrying value on Marina's books and holds and holds them as a long-term investment. For consolidated reporting purposes, how is the acquisition of Marina's bonds treated? A. As a decrease in the Bonds Payable account on Marina's books. B. As an increase in noncurrent assets. C. Everything related to the bonds is eliminated in the consolidation workpaper, and nothing related to the bonds appears in the consolidated financial statements. D. As a retirement of bonds. 2. Culver owns 80 percent of the common stock of Fowler Company. Culver also purchases some of Fowler's bonds directly from Fowler and holds the bonds as a long-term investment. How is the acquisition of the bonds treated for consolidated reporting purposes? A. As a retirement of bonds. B. As an increase in the Bonds Payable account on Fowler's books. C. Everything related to the bonds is eliminated in the consolidation workpaper, and nothing related to the bonds appears in the consolidated financial statements. D. As an increase in noncurrent assets. Hunter Corporation holds 80 percent of the voting shares of Moss Company. On January 1, 2008, Moss purchased $100,000 par value 12 percent first mortgage bonds of Hunter from Cruse for $115,000. Hunter originally issued the bonds to Cruse on January 1, 2006, for $110,000. The bonds have a 8-year maturity from the date of issue. Moss' reported net income of $65,000 for 2008, and Hunter reported income (excluding income from ownership of Moss's stock) of $90,000. 8-1
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Chapter 08 - Intercompany Indebtedness 3. Based on the information given above, what amount of interest expense does Hunter record annually? A. $10,750 B. $9,500 C. $2,500 D. $12,000 4. Based on the information given above, what amount of interest income does Moss record for 2008? A. $12,000 B. $2,500 C. $7,500 D. $9,500 5. Based on the information given above, what gain or loss on the retirement of bonds should be reported in the 2008 consolidated income statement? A. $6,250 gain B. $7,500 gain C. $7,500 loss D. $6,250 loss 6. Based on the information given above, what amount of consolidated net income should be reported for 2008? A. $163,750 B. $161,250 C. $146,250 D. $148,750 8-2
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Chapter 08 - Intercompany Indebtedness 7. At the end of the year, a parent acquires a wholly owned subsidiary's bonds from unaffiliated parties at a cost less than the subsidiary's carrying value. The consolidated net income for the year of acquisition should include the parent's separate operating income plus: A. the subsidiary's net income increased by the gain on constructive retirement of debt. B. the subsidiary's net income decreased by the gain on constructive retirement of debt. C. the subsidiary's net income increased by the gain on constructive retirement of debt, and
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This note was uploaded on 04/30/2010 for the course ACCT 05544 taught by Professor Hader during the Spring '10 term at Kean.

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Chap008 - Chapter 08 - Intercompany Indebtedness Chapter 08...

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