Question

2. The price of a bond is generally determined by

              

a. the relation between the coupon rate and the current market rate of similar investments

b. the stated interest rate of the bond

c. how many bonds are issued

d. who buys the bonds

  3. How is the consolidated statements treatment of constructive gain or loss on intercompany bond investments different from the treatment of unrealized profit on intercompany sales of inventory?

              

a. Constructive gain or loss is deferred until realized by transactions with outsiders

b. Unrealized profit s recognized immediately, before it has been recorded.

c. Constructive gain or loss is recognized immediately, before it has been recorded.

d. There is no difference in the treatment.

4. Which of the following is NOT an acceptable technique for allocating constructive gain or loss?

a. All to issuing company

b. All to purchasing company

c. Part to issuing company and part to purchasing company

d. All to S

Answer 1

2. correct answer is option b stated interest rate of bond determines price of the bond.

Option a is incorrect as similar investments does not determine price of the bond.

Option c is incorrect as how many bonds are sold does not determine price of bond.

Option d is incorrect as who buys bonds does not determine price of bond.

3. Correct answer is c as constructive gain or loss is realised immediately before it is recoreded unlike unrealised profits.

Option a is incorrect as it is not true that constructive gain or loss is deferred.

Option b is incorrect as unrealised profits is not recognised immediately.

Option d is incorrect as there is a difference in treatment.

4 Option d is correct as all allocation to S is not a method of allocation however all allocation to parent can be done.
Option a is incorrect as it is one of technique of allocation.

Option b is incorrect as it is also a technique of allocation.

Option c is incorrect as it is also a technique of allocation.