高级财务会计PPT8.ppt

Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,8-,*,2009 The McGraw-Hill Companies,Inc.All rights reserved.,McGraw-Hill/Irwin,Intercompany Indebtedness,8,Consolidation Overview,A direct intercompany debt transfer involves a loan from one affiliate to another without the participation of an unrelated party,An indirect intercompany debt transfer involves the issuance of debt to an unrelated party and the subsequent purchase of the debt instrument by an affiliate of the issuer,Consolidation Overview,Consolidation Overview,Bond Sale Directly to an Affiliate,When one company sells bonds directly to an affiliate,all effects of the intercompany indebtedness must be eliminated in preparing consolidated financial statements,Transfer at par value,Assume that on January 1,20X1,Special Foods borrows$100,000 from Peerless Products by issuing$100,000 par value,12 percent,10-year bonds.During 20X1,Special Foods records interest expense on the bonds of$12,000($100,000 x.12),and Peerless records an equal amount of interest income.,Bond Sale Directly to an Affiliate,In the preparation of consolidated financial statements for 20X1,two elimination entries are needed in the consolidation workpaper to remove the effects of the intercompany indebtedness:,These entries have no effect on consolidated net income because they reduce,interest income and interest expense by the same amount.,Bond Sale Directly to an Affiliate,Transfer at a discount or premium,Bond interest income or expense recorded do not equal cash interest payments,Interest income/expense amounts are adjusted for the amortization of the discount or premium,On January 1,20X1,Peerless Products purchases$100,000 par value,12 percent,10-year bonds from Special Foods for$90,000.Interest on the bonds is payable on January 1 and July 1.The interest expense recognized by Special Foods and the interest income recognized by Peerless each year include straight-line amortization of the discount,as follows:,Bond Sale Directly to an Affiliate,Entries by the debtor,Bond Sale Directly to an Affiliate,Entries by the bond investor,Bond Sale Directly to an Affiliate,Entry E(9)eliminates the bonds payable and associated discount against the investment in bonds.,Entry E(10)eliminates the bond interest income recognized by Peerless during 20X1 against the bond interest expense recognized by Special Foods.,Entry E(11)eliminates the interest receivable against the interest payable.,Bond Sale Directly to an Affiliate,Consolidation at the end of 20X2 requires elimination entries similar to those at the end of 20X1.,Because$1,000 of the discount is amortized each year,the bond investment balance on Peerlesss books increases to$92,000.,Bonds of Affiliate Purchased from a Nonaffiliate,Scenario:Bonds that were issued to an unrelated party are acquired later by an affiliate of the issuer,From the viewpoint of the consolidated entity,an acquisition of an affiliates bonds retires the bonds at the time they are purchased,Acquisition of the bonds of an affiliate by another company within the consolidated entity is referred to as constructive retirement,Although the bonds actually are not retired,they are treated as if they were retired in preparing consolidated financial statements,Bonds of Affiliate Purchased from a Nonaffiliate,When a constructive retirement occurs:,The consolidated income statement for the period reports a gain or loss on debt retirement based on the difference between the carrying value of the bonds on the books of the debtor and the purchase price paid by the affiliate,Neither the bonds payable nor the purchasers investment in the bonds is reported in the consolidated balance sheet because the bonds are no longer considered outstanding,Bonds of Affiliate Purchased from a Nonaffiliate,Purchase at book value,Elimination entries are identical to those used in eliminating a direct intercorporate debt transfer,The total of the bond liability and the related premium/discount reported by the debtor equal the balance in the investment account shown by the bondholder,and the interest income reported by the bondholder each period equals the interest expense reported by the debtor,All of these amounts need to be eliminated,Bonds of Affiliate Purchased from a Nonaffiliate,Purchase at an amount less than book value,When the price paid to acquire the bonds of an affiliate differs from the liability reported by the debtor,a gain or loss is reported in the consolidated income statement in the period of constructive retirement,The bond interest income and interest expense reported by the two affiliates subsequent to the purchase must be eliminated in preparing consolidated statements,Interest income reported by the investing affiliate and interest expense reported by the debtor are not equal in this case because of the different bond carrying amounts on the books of the two companies,Bonds of Affiliate Purchased from a Nonaffiliate-Illustration,Peerless Products Corporation acquires 80 percent of the common stock of Special Foods Inc.on December 31,20X0,for its underlying book value of$240,000.At that date,the fair value of the noncontrolling interest is equal to its book value of$60,000.Additionally:,1.On January 1,20X1,Special Foods issues 10-year,12 percent bonds payable with a par value of$100,000;the bonds are issued at 102.Nonaffiliated Corporation purchases the bonds from Special Foods.,2.The bonds pay interest on June 30 and December 31.,3.Both Peerless and Special amortize bond discount and premium using the straight-line method.,4.On December 31,20X1,Peerless purchases the bonds from Nonaffiliated for$91,000.,5.Special Foods reports net income of$50,000 for 20X1 and$75,000 for 20X2 and declares dividends of$30,000 in 20X1 and$40,000 in 20X2.,6.Peerless earns$140,000 in 20X1 and$160,000 in 20X2 from its own separate operations.Peerless declares dividends of$60,000 in both 20X1 and 20X2.,Bonds of Affiliate Purchased from a Nonaffiliate-Illustration,Bonds of Affiliate Purchased from a Nonaffiliate-Illustration,Bonds of Affiliate Purchased from a Nonaffiliate-Illustration,This gain is included in the consolidated income statement as a gain on the retirement of bonds.,Bonds of Affiliate Purchased from a Nonaffiliate-Illustration,Assignment of gain-constructive retirement,Four approaches have been used:,The affiliate issuing the bonds,The affiliate purchasing the bonds,The parent company,The issuing and purchasing companies,based on the difference between the carrying amounts of the bonds on their books at the date of purchase and the par value of the bonds,Bonds of Affiliate Purchased from a Nonaffiliate-Illustration,Peerless also records the,normal,basic equity-method entries during 20X1.The December 31,20X1,workpaper to prepare consolidated financial statements for Peerless and Special Foods is presented in Figure 82 in the text.Eliminating entries:,Bonds of Affiliate Purchased from a Nonaffiliate-Illustration,Consolidated Net Income20X1,Noncontrolling InterestDecember 31,20X1,Bonds of Affiliate Purchased from a Nonaffiliate-Illustration,Bonds of Affiliate Purchased from a Nonaffiliate-Illustration,Subsequent recognition of gain on constructive retirement,In 20X1,the entire$10,800 gain on the retirement was recognized in the consolidated income statement but not on the books of either Peerless or Special Foods,Bonds of Affiliate Purchased from a Nonaffiliate-Illustration,This can be visualized as in the following figure:,Bonds of Affiliate Purchased from a Nonaffiliate-Illustration,In each year subsequent to 20X1,both Peerless and Special Foods recognize a portion of the constructive gain as they amortize the discount on the bond investment and the premium on the bond liability:,Bonds of Affiliate Purchased from a Nonaffiliate-Illustration,Elimination Entries Needed in the Workpaper,Bonds of Affiliate Purchased from a Nonaffiliate-Illustration,The impact of the constructive gain on the beginning noncontrolling interest balance and on the beginning consolidated retained earnings balance is reflected in entry E(34),Entry E(34)also eliminates all aspects of the intercorporate bond holdings,including:,Peerlesss investment in bonds,Special Foods bonds payable and the associated premium,Peerlesss bond interest income,Special Foods bond interest expense,Bonds of Affiliate Purchased from a Nonaffiliate-Illustration,The amounts related to the bonds from the books of Peerless and Special Foods and the appropriate consolidated amounts are:,The consolidation workpaper prepared for December 31,20X2,is presented in Figure 83 in the text,Bonds of Affiliate Purchased from a Nonaffiliate-Illustration,Consolidated Net Income20X2,Bonds of Affiliate Purchased from a Nonaffiliate-Illustration,Noncontrolling InterestDecember 31,20X2,Bonds of Affiliate Purchased from a Nonaffiliate-Illustration,Bond elimination entry in subsequent years,In years after 20X2,the workpaper entry to eliminate the intercompany bonds and to adjust for the gain on constructive retirement of the bonds is similar to entry E(34),The unamortized bond discount and premium decrease each year by$1,000 and$200,respectively,Bonds of Affiliate Purchased from a Nonaffiliate-Illustration,As of the beginning of 20X3,$9,600 of the gain on the constructive retirement of the bonds remains unrecognized by the affiliates:,Bonds of Affiliate Purchased from a Nonaffiliate-Illustration,In the bond elimination entry in the consolidation workpaper prepared at the end of 20X3,this amount is allocated between beginning retained earnings and the noncontrolling interest,Bonds of Affiliate Purchased from a Nonaffiliate,Purchase at an amount greater than book value,The consolidation procedures are virtually the same except that a loss is recognized on the constructive retirement of the debt,Special Foods issues 10-year 12 percent bonds on January 1,20X1,at par of$100,000.The bonds are purchased from Special Foods by Nonaffiliated Corporation,which sells the bonds to Peerless on December 31,20X1,for$104,500.Special Foods recognizes$12,000($100,000 x.12)of interest expense each year.Peerless recognizes interest income of$11,500 in each year after 20X1:,Bonds of Affiliate Purchased from a Nonaffiliate,Because the bonds were issued at par,the carrying amount on Special Foods books remains at$100,000.Thus,once Peerless purchases the bonds from Nonaffiliated Corporation for$104,500,a loss on the constructive retirement must be recognized in the consolidated income statement for$4,500.,The bond elimination entry in the consolidation workpaper prepared at the end of 20X1 removes the bonds payable and the bond investment and recognizes the loss on the constructive retirement:,Bonds of Affiliate Purchased from a Nonaffiliate,The bond elimination entry needed in the consolidation workpaper prepared at the end of 20X2 is as follows:,Bonds of Affiliate Purchased from a Nonaffiliate,Similarly,the following entry is needed in the consolidation workpaper at the end of 20X3:,