高级会计学(第10版)教师手册Beams10e_IM_4.pdf

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1、 2009 Pearson Education,Inc.publishing as Prentice Hall 68 Chapter 7 INTERCOMPANY PROFIT TRANSACTIONS-BONDS Chapter Outline PURCHASES OF BONDS BY AFFILIATES A When one affiliate purchases the bonds of another affiliated company on the open market,the bonds are no longer outstanding from the viewpoin

2、t of the consolidated entity.B However,the purchasing affiliate accounts for the bond investment as if the bonds were those of an unaffiliated entity and the issuing affiliate continues to account for the bonds as if they were debt obligations held by unaffiliated entities.C Consolidated statements

3、are prepared to show the financial position and results of operations as if the issuing affiliate had purchased and retired its own bonds.1 The bonds are constructively retired in the consolidation process.Payables and receivables related to the intercompany bond holdings are reciprocals that must b

4、e eliminated.2 The difference between the book value of the bond liability and the purchase price of the investment is a constructive gain or loss of the consolidated entity.a The gain or loss is realized and recognized by the consolidated entity.b The gain or loss is not recognized on the books of

5、the issuing affiliate.c Constructive gains and losses are assigned to the issuing affiliate.This is supported by the concept of agency theory.3 The constructive gain or loss appears on the consolidated income statement in the year in which the affiliates bonds are purchased.4 Only the bond liability

6、 and related premium or discount held outside the consolidated entity appear on the consolidated balance sheet.2009 Pearson Education,Inc.publishing as Prentice Hall 69 5 No gain or loss results when an affiliates bonds are purchased at book value,or from direct borrowing and lending between affilia

7、tes.6 Straight-line amortization of premiums and discounts is used in the examples in this textbook for simplicity.The effective interest method is superior,but it is not required by APB Opinion No.21 for transactions between parent and subsidiary companies and between subsidiaries of a common paren

8、t.PARENT COMPANY BONDS ACQUIRED BY A SUBSIDIARY(Illustration 7-1,1,2)A When the bonds of a parent company are acquired by a subsidiary on the open market,the transaction is similar to the accounting for downstream intercompany transactions.B The parent company is the issuing affiliate and constructi

9、ve gains and losses are assigned to the parent.1 At the time of purchase,the subsidiary records the investment in parent company bonds at the amount paid.No other entry is made.a The constructive gain or loss is not recorded on the books of the parent or subsidiary.b The constructive gain or loss is

10、 the difference between the bond liability accounts(parents books)and the bond investment account(subsidiarys books).C During the year,the parent amortizes the premium or discount on bonds payable on its separate books and the subsidiary amortizes the premium or discount on the bond investment on it

11、s separate books.1 This amortization results in a piecemeal realization and recognition of the constructive gain or loss on the respective books of parent and subsidiary.This piecemeal recognition of the constructive gain or loss is reflected in the interest income and interest expense accounts rela

12、ting to the constructively retired bonds.2 The amount of piecemeal recognition of a constructive gain or loss is always the difference between the intercompany interest expense and interest income amounts that are eliminated.2009 Pearson Education,Inc.publishing as Prentice Hall 70 D At year end,the

13、 parent company adjusts its income from subsidiary and investment account for the entire constructive gain or loss and any piecemeal recognition of that gain or loss under the equity method of accounting.1 The full amount of the constructive gain or loss is charged to investment income because the p

14、arent is the issuing affiliate.2 When the bonds mature,the difference between the bond liability and bond investment will be fully amortized and the parent companys investment in subsidiary account will be equal to the subsidiarys underlying equity.E Consolidation procedures relating to the bonds in

15、 the year of the intercompany bond purchase include the following:1 The constructive gain or loss is recorded in the consolidation working papers because it is a gain or loss to the consolidated entity.2 The reciprocal bonds payable and bond investment amounts and the related premium or discount are

16、 eliminated.3 Reciprocal amounts of interest expense and interest income are eliminated.4 Reciprocal amounts of interest payable and interest receivable are eliminated.F In years subsequent to the intercompany bond purchase,the parent and subsidiary continue to account for their respective bonds pay

17、able and investment in bonds as if the bonds were held by unaffiliated entities.1 The difference between the parents interest expense on the intercompany bonds and the subsidiarys interest income on the bonds is the piecemeal recognition of the gain or loss.However,this piecemeal gain or loss must b

18、e eliminated since the entire gain or loss to the consolidated entity was recognized in the year the bonds were purchased by the affiliate.2 This difference is recognized on the parents books as an adjustment of investment income.3 A consolidation working paper entry eliminates reciprocal interest i

19、ncome and interest expense amounts,reciprocal bond investment and bond liability amounts,reciprocal interest receivable and payable amounts,and the difference is a debit or credit to the investment account.2009 Pearson Education,Inc.publishing as Prentice Hall 71 This debit or credit to the investme

20、nt account establishes reciprocity between the investment in subsidiary and the subsidiary equity accounts at the beginning of the period.SUBSIDIARY BONDS ACQUIRED BY THE PARENT COMPANY(Illustration 7-1,3,4)A When the bonds of a subsidiary company are acquired by a parent on the open market,the tran

21、saction is similar to the accounting for upstream intercompany transactions.B The subsidiary company is the issuing affiliate and constructive gains and losses are allocated between the majority and noncontrolling interests.1 At the time of purchase,the parent records the investment in subsidiary bo

22、nds at the amount paid.No other entry is made.a The constructive gain or loss is not recorded on the books of the parent or subsidiary.b The constructive gain or loss is the difference between the bond liability accounts(subsidiarys books)and the bond investment account(parents books).C During the y

23、ear,the subsidiary amortizes the premium or discount on bonds payable on its separate books and the parent amortizes the premium or discount on the bond investment on its separate books.1 This amortization results in a piecemeal realization and recognition of the constructive gain or loss on the res

24、pective books of parent and subsidiary.This piecemeal recognition of the constructive gain or loss is reflected in the interest income and interest expense accounts relating to the constructively retired bonds.2 The amount of piecemeal recognition of a constructive gain or loss is always the differe

25、nce between the intercompany interest expense and interest income amounts that are eliminated.3 The constructive gain or loss is allocated between the majority and noncontrolling interests.a Only the parent companys proportionate share of the constructive gain or loss is included in consolidated net

26、 income.2009 Pearson Education,Inc.publishing as Prentice Hall 72 b The noncontrolling interests share of the constructive gain or loss is reflected in the consolidated income statement as noncontrolling interest expense.c Noncontrolling interest expense is computed as the minority interest percenta

27、ge times the subsidiarys realized income D In years subsequent to the year of purchase of intercompany bonds,the portion of the constructive gain or loss that has not been recognized through premium and discount amortization on the separate books of parent and subsidiary must be allocated between th

28、e investment account and noncontrolling interest in the consolidation working papers.Description of assignment material Minutes Questions(12)Exercises(13)E7-1 4 MC general questions 12 E7-2 Pavone/Showalter 2 MC problems 10 E7-3 Palmer/Scott 5 MC problem-type questions(constructive gain on January 2

29、0 1 purchase of parent company bonds)E7-4 Paul/Sally Computations(subsidiary purchases parent company 10 bonds on January 1)E7-5 Prim/Saddie Prepare a consolidated income statement(constructive 15 gain on January 1 purchase of parents bonds)E7-6 Platt/Smedley Computations(parent purchases subsidiary

30、 bonds on 15 January 1)E7-7 Pitt/Slick 3 MC problem-type questions(constructive gain on January 1 15 purchase of subsidiarys bonds)E7-8 Partie/Saydo Computations(midyear purchase of parents bonds)20 E7-9 Picker/Skidden Computations under different assumptions(January 1 25 purchase of parents bonds a

31、nd subsidiarys bonds)E7-10 Perdue/Shelly Computations(effect of January 1 constructive retirement 25 of parents bonds)E7-11 Parrish/Sandwood Prepare a consolidated income statement(January 1 20 constructive retirement of all subsidiary bonds)E7-12 Public/Spede Computations and working paper entries(

32、parent purchases 30 subsidiary bonds)E7-13 Pappy/Sonny Computations and journal entries(constructive gain on 25 subsidiarys purchase of parent bonds)Problems(6)2009 Pearson Education,Inc.publishing as Prentice Hall 73 P7-1 Pongo/Song Computations and working paper entries(data given at end of 25 yea

33、r on constructive retirement of parents bonds)P7-2 Pewter/Steel Four-year income schedule(several intercompany transactions)30 P7-3 Placid/Storm Financial statement working papers(equity method,70 constructive retirement of parent bonds,unrealized profit from intercompany inventory and plant asset s

34、ales)P7-4 Peter/Cher Computations and the equity method with separate and 50 consolidated statements given P7-5 AICPA Poe/Shaw Computations(constructive retirement of subsidiary 30 bonds on financial statement date)P7-6 Paar/Sahl Financial statement working papers(equity method,constructive 60 retir

35、ement of parent bonds,unrealized profit from intercompany inventory and plant asset sales)Internet Assignment Using an internet search engine,locate two examples of gains or losses on extinguishments of debt.Summarize the financial statement presentation and any supplemental disclosures provided by

36、the companies.ELECTRONIC SUPPLEMENT ACCOUNTING FOR BOND TRANSACTIONS BY BOTH INVESTORS AND ISSUERS This section of the electronic supplement provides a thorough review of accounting treatment for bonds from both an investor and issuer perspective.INTERCOMPANY BOND TRANSACTIONS UNDER THE INCOMPLETE E

37、QUITY AND COST METHODS This section of the electronic supplement illustrates the consolidation process when the parent company accounts for its investment in subsidiary using the incomplete equity method or the cost method.Description of assignment material Problems(6)Minutes W-1 Pike/Sack Prepare a

38、 consolidated balance sheet(100%pooled 20 subsidiary purchases parent company bonds on January 1)W-2 Pile/Scud Financial statement working papers(incomplete equity method,50 year of acquisition and 100%owned,constructive retirement of parents bonds)W-3 Plum/Star Financial statement working papers(in

39、complete equity method,60 constructive retirement of parent bonds,unrealized profit from upstream inventory sales and downstream sale of equipment)W-4 Pate/Surry Prepare consolidation working papers(pooling of interests,50 2009 Pearson Education,Inc.publishing as Prentice Hall 74 Constructive retire

40、ment of bonds,unrealized profit from intercompany Inventory and plant assets).W-5 AICPA Madison/Adams Consolidated balance sheet and retained earnings 30 (pooling).W-6 Paul/Silas Consolidated working papers(intercompany bonds and inventory).50 Illustration 7-1 INTERCOMPANY BOND TRANSACTIONS S Acquir

41、es P Bonds S is a 90%owned subsidiary of P,acquired at book value equal to fair value in 20X3.P has a$50,000,10%bond issue outstanding that was issued at par and matures on January 1,20X9.S acquires$10,000 of these bonds for$10,500 on January 1,20X4.Separate incomes for 20X4 and 20X5 follow:20X4 P S

42、 Sales$50,000$30,000 Interest income 900 Interest expense (5,000)Other expenses (35,000)(25,900)Separate incomes$10,000$5,000 20X5 P S Sales$60,000$40,000 Interest income 900 Interest expenses (5,000)Other expenses (45,000)(35,900)Separate incomes$10,000$5,000 P Acquires Ss Bonds S is a 90%owned sub

43、sidiary of P,acquired at book value equal to fair value in 20X3.S has a$50,000,10%bond issue outstanding that was issued at par and matures on January 1,20X9.P acquires$10,000 of these bonds for$10,500 on January 1,20X4.Separate incomes for 20X4 and 20X5 are as follows:20X4 P S Sales$50,000$30,000 I

44、nterest income 900 Interest expense (5,000)Other expenses (40,900)(20,000)Separate incomes$10,000$5,000 20X5 P S 2009 Pearson Education,Inc.publishing as Prentice Hall 75 Sales$60,000$40,000 Interest income 900 Interest expenses (5,000)Other expenses (50,900)(30,000)Separate incomes$10,000$5,000 1 S

45、 Acquires P Bonds$500 constructive loss-$100 piecemeal recognition One-line consolidation entry:Investment in S$4,100 Income from S$4,100 To take up income from S computed as($5,000 x 90%)$500 constructive loss+$100 piecemeal recognition of constructive loss.Consolidation working paper entries:a Con

46、structive loss$500 Interest income 900 Bonds payable 10,000 Investment in P bonds$10,400 Interest expense 1,000 To enter constructive loss and eliminate reciprocal bond investment and liability amounts and bond interest income and expense amounts.b Income from S$4,100 Investment in S$4,100 To establ

47、ish reciprocity.x Interest payable$500 Interest receivable$500 To eliminate reciprocal interest payable and receivable amounts.(Assumes six months interest is accrued at December 31.)2009 Pearson Education,Inc.publishing as Prentice Hall 76 2 S Acquires P Bonds$100 piecemeal recognition of 20X4 loss

48、 One-line consolidation entry:Investment in S$4,600 Income from S$4,600 To take up income from S computed as($5,000 x 90%)+$100 piecemeal recognition from constructive loss in 20X4.Consolidation working paper entries:a Investment in S$400 Interest income 900 Bonds payable 10,000 Investment in P bond

49、s$10,300 Interest expense 1,000 To eliminate reciprocal bond investment and liability amounts,bond interest income and expense amounts,and adjust the investment in S account for the unamortized constructive loss.b Income from S$4,600 Investment in S$4,600 To establish reciprocity.x Interest payable$

50、500 Interest receivable$500 To eliminate reciprocal interest payable and receivable amounts.(Assumes six months interest is accrued at December 31.)2009 Pearson Education,Inc.publishing as Prentice Hall 77 3 P Acquires S Bonds$500 constructive loss-$100 piecemeal recognition One-line consolidation e