Pink Ltd is the parent Floyd Ltd.On 1 January 20X3 Pink made a loan to Floyd in the form of bills of exchange in the total amount of $80 000 face value.Floyd was required to repay the $80 000 amount (which included the interest component) on 1 October 20X3.On 1 February Pink discounted $20 000 of the bills with the Darkside bank, without recourse, and received $15 000 cash.Floyd was unaware of the discounting.The end of financial reporting year for the group is 30 June.
Which is the correct set of consolidation entries for June 30 20X3 in respect of the bills of exchange?:

Question

Quizplus · Accepted Answer

As of 30 June 20X3, Pink still holds bills of exchange receivable from Floyd for $60,000 ($80,000 - $20,000). Floyd has not yet paid the full amount of the bills of exchange. Therefore, the appropriate consolidation entry is to eliminate the intercompany bills payable and bills receivable and reflect the remaining amount due from Floyd to Pink in the consolidated financial statements. Option A is incorrect because it shows that only $20,000 of bills payable are owing to Pink, but the actual amount owing is $60,000. Option B is incorrect because it shows that $150,000 of bills payable are owing to Pink, which is more than the actual amount of the bill ($80,000). Option D is incorrect because it shows a contingent liability, which is not appropriate for this scenario.

Pink Ltd Is the Parent Floyd Ltd B) C) D) Contingent Liability

Pink Ltd Is the Parent Floyd Ltd B) C) D)
Contingent Liability