#43/44 Intercompany Fixed Asset & Bond Transactions

Question 1

For consolidated purposes, what effect will the intercompany sale of a fixed asset at a profit have on depreciation expense recognized by the buying affiliate?

Answer 1

It will overstate depreciation expense

Question 2

Assume that on January 2, Company P recognized a $3,000 gain on the sale of a depreciable fixed asset to its subsidiary, Company S. Company S will depreciate the asset using straight-line depreciation over the remaining three-year life of the asset. What amount of intercompany gain will be eliminated from P’s retained earnings at the end of the year following the year of the intercompany fixed asset transactions?

Answer 2

$2,000

Question 3

When bonds become intercompany, it is as though the bonds have been retired for consolidated purposes.

True or False?

Answer 3

True

Question 4

Intercompany bonds can result in the recognition of a gain or a loss for consolidating purposes.

True or False?

Answer 4

True

When the liability and Investment are eliminated, so too are the related premium or discount.

Question 5

When bonds become intercompany, they are written off of the books of the issuing affiliate and the investing affiliate.

True or False?

Answer 5

False

Question 6

Elimination of a premium on bonds payable results in what?

Answer 6

Gain on constructive retirement

Question 7

Elimination of a discount on bonds payable results in what?

Answer 7

Loss on constructive retirement

Question 8

Elimination of a premium on investment in bonds results in what?

Answer 8

Loss on constructive retirement

Question 9

Elimination of a discount on investment in bods results in what?

Answer 9

Gain on constructive retirement