The Accounting Problems Encountered in Consolidated Intra-Entity Debt Transactions When

question 112

Multiple Choice

The accounting problems encountered in consolidated intra-entity debt transactions when the debt is acquired by an affiliate from an outside party include all of the following except:

• A) Both the investment and debt accounts have to be eliminated now and for each future consolidated financial statement despite containing differing balances.
• B) Subsequent interest revenue/expense must be removed although these balances fail to agree in amount.
• C) A gain or loss must be recognized by both parent and subsidiary companies.
• D) Changes in the investment, debt, interest revenue, and interest expense accounts occur constantly because of the amortization process.
• E) The gain or loss on the retirement of the debt must be recognized by the business combination in the year the debt is acquired, even though this balance does not appear on the financial records of either company.

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Definitions:

Corporate Account

A type of financial account specifically designed for businesses, enabling them to manage expenses, assets, and transactions under the corporate name.

Negotiable Instrument

A document guaranteeing the payment of a specific amount of money, either on demand or at a set time, with the payee being able to transfer it to another party.

Writing

The act or process of producing text, symbols, or other forms of communication on a surface, often for recording or conveying information.

Words Of Negotiability

Phrases or terms in a financial document that grant the right to transfer it to another party, ensuring its negotiability.