Accounting 401Brief Notes on Intercompany Bond TransactionsSummer I 2009A.From a consolidated point of view, the purchase of an affiliate’s bonds by another affiliate is the same as a partial or complete retirement or early extinguishment of the debt.B.When this type of transaction occurs, the consolidated entity realizes gain or loss as the difference between the cost of the bonds to the purchasing affiliate and the carrying amount of the bonds on the selling affiliate’s books.C.Gain or loss is reported in the consolidated income statement as part of income from continuing operations. If the carrying amount on the selling affiliate’s books is greater than the cost of the investment in bonds, a consolidated gain is realized.D.If a subsidiary purchases some or all of parent’s bonds on the open market, the gain or loss may be attributable to the parent. If so, the intercompany transaction would be downstream. Under this assumption, it is assumed that the subsidiary acquired the bonds acting as an agent for the parent.
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