tailieunhanh - Lecture Advanced accounting (6th Edition): Chapter 9 - Jeter, Chaney

Chapter 9 - Intercompany bond holdings and miscellaneous topics-consolidated financial statements. A number of different topics are covered in this chapter. The first has to do with intercompany bond holdings. Often one affiliate will buy the bonds of another affiliate – we will treat this as a constructive retirement. We will also discuss intercompany discounting of notes receivable, S’s stock dividends, and S’s preferred stock. | Intercompany Bond Holdings and Miscellaneous Topics—Consolidated Financial Statements 1 Learning Objectives Describe the term “constructive retirement of debt”. Describe how the gain or loss on constructive retirement of intercompany bond holdings is allocated between the purchasing and issuing companies. Explain the impact on the consolidated financial statements when a company issues a note to an affiliated company, which then discounts the note with an outside company. Determine the effect on the consolidated financial statements when a subsidiary issues a stock dividend. Understand the difference in how stock dividends and cash dividends issued by a subsidiary company affect the consolidated financial statements. 2 Learning Objectives Determine the impact on the investment account when a subsidiary issues a stock dividend from preacquisition earnings and from postacquisition earnings. Explain how the purchase price is allocated when the subsidiary has both common and preferred stock outstanding. Determine the controlling interest in income when the parent company owns both common and preferred stock of the subsidiary. 3 Intercompany Bond Holdings An affiliate company may purchase bonds issued by another affiliate directly from the issuing company or from outsiders after the original issue. Because the bonds are held within the affiliated group, the intercompany bond investments (receivable), bonds payable (liability), intercompany interest expense and, intercompany interest revenue, must be eliminated. Bonds not held by external parties are viewed as being constructively retired in the consolidated financial statements. This is viewed as early retirement of debt. 4 LO 1 Constructive retirement of debt. Illustration: Three year bonds with a par value of $100,000 are issued on Jan. 2, 2013, for $85,000. The bonds pay 7% interest each December 31. Assume straight-line amortization of the discount. Accounting for Bonds - A Review 5 LO 1 Constructive retirement of . | Intercompany Bond Holdings and Miscellaneous Topics—Consolidated Financial Statements 1 Learning Objectives Describe the term “constructive retirement of debt”. Describe how the gain or loss on constructive retirement of intercompany bond holdings is allocated between the purchasing and issuing companies. Explain the impact on the consolidated financial statements when a company issues a note to an affiliated company, which then discounts the note with an outside company. Determine the effect on the consolidated financial statements when a subsidiary issues a stock dividend. Understand the difference in how stock dividends and cash dividends issued by a subsidiary company affect the consolidated financial statements. 2 Learning Objectives Determine the impact on the investment account when a subsidiary issues a stock dividend from preacquisition earnings and from postacquisition earnings. Explain how the purchase price is allocated when the subsidiary has both common and preferred .