Question

No constructive gain or loss arises from the purchase of an affiliate's bonds if the

A) Affiliate is a 100%-owned subsidiary.
B) Bonds are purchased at book value.
C) Bonds are purchased with arm's-length bargaining from outside entities.
D) Gain or loss cannot be reasonably estimated.

Answer 1

In the context of the question, the purchase of an affiliate's bonds does not result in any constructive gain or loss if certain conditions are met.

Step-by-step explanation:

In the context of the given question, if the affiliate is a 100%-owned subsidiary, and the bonds are purchased at book value, there is no constructive gain or loss arising from the purchase. This means that the purchase does not result in any financial advantages or disadvantages for the company.

Similarly, if the bonds are purchased with arm's-length bargaining from outside entities, there is no constructive gain or loss. This implies that the purchase is made on fair terms and does not have any positive or negative impact on the company's financial position.

On the other hand, if the gain or loss from the purchase cannot be reasonably estimated, then it cannot be determined whether there is a constructive gain or loss. The lack of sufficient information prevents a conclusive determination of the financial impact.