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) Any gain or loss is deferred on a consolidated income statement.
B) Any gain or loss is recognized on a consolidated income statement.
C) Interest revenue on the affiliated debt is recognized on a consolidated income statement.
D) Interest expense on the affiliated debt is recognized on a consolidated income statement.
E) Consolidated retained earnings is adjusted for the difference between the purchase price and the carrying value of the bonds.

Question

Quizplus · Accepted Answer

According to accounting rules under consolidated financial statements, any gain or loss in the acquisition of existing debt of a consolidated affiliate is recognized on a consolidated income statement. This means that the difference between the purchase price and the carrying value of the bonds is recorded as a gain or loss on the consolidated income statement. Interest revenue and interest expense on the affiliated debt are also recognized on the consolidated income statement. However, consolidated retained earnings is not adjusted for this transaction.

Which of the Following Statements Is True Concerning the Acquisition