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chapter_6_10th_word - Chapter 6 solutions 5 If the bonds...

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Chapter 6 solutions 5. If the bonds are acquired directly from the affiliate company, all reciprocal accounts will be equal in amount. The debt and the receivable will be in agreement so that no gain or loss is created. Interest income and interest expense should also reflect identical amounts. There- fore, the consolidation process for this type of intra-entity debt requires no more than the off- setting of the various reciprocal balances. 6. The gain or loss to be reported is the difference between the price paid and the book value of the debt on the date of acquisition. For consolidation purposes, this gain or loss should be recognized immediately on the date of acquisition. 7. Because the bonds are still legally outstanding, they will continue to be found on both sets of financial records. Thus, each account (Bonds Payable, Investment in Bonds, Interest Ex- pense, and Interest Income) must be eliminated within the consolidation process. Any gain
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