Bonds of affiliate purchased from non-affiliate: When an affiliate of issuer later acquires bonds from unrelated party, the bonds are retired at the time of purchase. The bonds are not held outside the consolidated entity. Once another company within the consolidated entity purchases them, it must be treated as repurchase by debtor. Acquisition of an affiliate’s bonds by another company with in affiliated entities is referred as constructive retirement. Although bonds are not actually retired.
When constructive retirement occurs the consolidated income statement reports gain or loss based on difference between carrying value and purchase price paid by affiliate to acquire it. And it is not reported in consolidated balance sheet either as bond payable or as investment because the bonds are no longer outstanding.
To explain : The manner the income is assigned to non-controlling interest affects when bonds purchased by parents are related to subsidiary from unaffiliated company.
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- A parent business purchases bonds on the open market that had previously been issued by a subsidiary of the parent firm. Consequently, the price paid by the parent is less than the amount of bonds that are currently recorded on the subsid- iary's books. When it comes to reporting the difference between the price paid and the carrying amount of the bonds, how should the parent report it on its consolidated financial statements?arrow_forwardWhen is the fair value method used for recording interest in a separate company?arrow_forwardHow does a corporations debt differ from its equityarrow_forward
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- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning