26) One company purchases the outstanding debt instruments of an affiliated company on the open market. This transaction creates a gain that is appropriately recognized in the consolidated financial statements of that year. Thereafter, a worksheet adjustment is required to correct the beginning balance of consolidated Retained Earnings (or the parents Investment in Subsidiary account when the equity method is employed). Why is the amount of this adjustment reduced from year to year?

27) A parent acquires the outstanding bonds of a subsidiary company directly from an outside third party. For consolidation purposes, this transaction creates a gain of $45,000. Should this gain be allocated to the parent or the subsidiary? Why?

28) The income statement and the balance sheet are produced using a worksheet, but a consolidated statement of cash flows is not. What process is followed in preparing a consolidated statement of cash flows?

29) How do noncontrolling interest balances affect the consolidated statement of cash flows?

30) In many cases, EPS is computed based on the parents portion of consolidated net income and parent company shares and convertibles. However, a different process must be used for some business combinations. When is this alternative approach required?

31) A subsidiary has (1) a convertible preferred stock and (2) a convertible bond. How are these items factored into the computation of earnings per share for the parent company?

32) Why might a subsidiary decide to issue new shares of common stock to parties outside the business combination?

33) How are intra-entity transfers reported in an investees separate financial statements if the investor is using the equity method?