Company S Is a 100%-Owned Subsidiary of Company P

question 33

Multiple Choice

Company S is a 100%-owned subsidiary of Company P.Company S has outstanding 8%, 10-year bonds sold to yield 7%.On January 1 of the current year, Company P purchased all of the Company S outstanding bonds at a price that reflected the current 9% effective interest rate.How should this event be reflected in the current year's consolidated statements?

• A)​The bonds remain in the balance sheet and are accounted for at a 7% effective rate.
• B)​The bonds remain in the balance sheet and are accounted for at a 9% effective rate.
• C)​Retirement of the bonds at a gain as of the purchase date.
• D)​Retirement of the bonds at a loss as of the purchase date.

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Definitions:

Null Hypothesis

A hypothesis that suggests there is no statistical significance between the two observed phenomena.

Alpha

In statistics, often referred to as the significance level, it represents the probability of rejecting the null hypothesis when it is actually true.

Degrees Of Freedom

The number of independent pieces of information used to calculate a statistic, often influencing the shape of various sampling distributions.

Statistical Analysis

The method of gathering, examining, analysing, and showcasing information to identify inherent trends and patterns.