Basaraba Ltd

question 1

Multiple Choice

Basaraba Ltd. owns 75% of the outstanding common shares of Gill Ltd. Gill purchased all of Basaraba's outstanding bond issue on the open market at a discount. The bonds have an unamortized premium attached. This transaction, in effect, retires the bond and results in a gain. Under the par-value approach to dealing with a gain on elimination of intercompany bond holdings, which of the following statements is true?

• A)The gain is allocated all to the purchaser.
• B)The gain is allocated all to the issuer.
• C)The gain is allocated to both the purchaser and issuer as though they do not have any affiliation with each other.
• D)The gain is eliminated on consolidation.

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Definitions:

Multiple-Zone Pricing

A pricing strategy where a company sets different prices for its products or services in different geographical areas based on local market conditions.

Promotional Pricing

A marketing strategy where temporarily reduced prices are used to increase short-term sales and visibility of a product or service.

Cruise Lines

Companies that operate cruise ships and offer sea voyages for vacation and leisure purposes.

Airfare

The price charged for a passenger flight.