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

question 49

Multiple Choice

Company S is a 100%-owned subsidiary of Company P. On January 1, 20X9, Company S has $100,000 of 8% face rate bonds outstanding. The bonds had 5 years to maturity on January 1, 20X9, and had an unamortized discount of $5,000. On that date, Company P purchased the bonds for $99,000. The net adjustment needed to consolidate retained earnings on December 31, 20X9 is ____.

• A) $(4,000)
• B) $(3,200)
• C) $(800)
• D) $0

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Definitions:

External Audit

An independent examination of financial records and statements, conducted by an outside firm, to ensure accuracy and compliance with accounting standards.

Financial Statements

Official documentation detailing the monetary transactions and financial standing of a company, person, or different organization.

Credibility

The quality of being trusted and believed in, important in financial reporting and accounting practices.

Net Sales

The sum of sales income left over after subtracting returns, allowances for damaged or missing goods, and discounts.