Which of the Following Statements Is True Concerning the Acquisition

question 63

Multiple Choice

Which of the following statements is true concerning the acquisition of existing debt of a consolidated affiliate in the year of the debt acquisition?

• A) Recognition of any gain or loss is deferred until the debt is extinguished for purposes of reporting such debt on consolidated financial statements.
• B) Any gain or loss is recognized in the year of acquisition on a consolidated income statement.
• C) Interest revenue generated from the debt of an affiliate is recognized on a consolidated income statement.
• D) Interest expense recognized from carrying debt instruments is recognized on a consolidated income statement.
• E) Consolidated retained earnings is adjusted to take into account the difference between the purchase price and carrying value of the debt.

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Definitions:

Oil Exploration

The process of searching for underground or underwater oil reserves with the goal of drilling and extracting oil.

Standard Costs

Predetermined costs for manufacturing a product or providing a service, used as benchmarks to measure performance.

Materials Price Variance

The difference between the actual cost of materials and the expected cost at standard prices.

Variable Overhead

Refers to the costs of production that fluctuate with the level of output, such as utilities and materials, that do not have a fixed price associated with production levels.