Culver Owns 80 Percent of the Common Stock of Fowler

question 40

Multiple Choice

Culver owns 80 percent of the common stock of Fowler Company.Culver also purchases some of Fowler's bonds directly from Fowler and holds the bonds as a long-term investment.How is the acquisition of the bonds treated for consolidated reporting purposes?

• A) As a retirement of bonds.
• B) As an increase in the Bonds Payable account on Fowler's books.
• C) Everything related to the intercompany bonds is eliminated in the consolidation worksheet, and nothing related to the bonds appears in the consolidated financial statements.
• D) As an increase in noncurrent assets.

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Definitions:

Risk-Free Asset

An investment with a certain return and no risk of financial loss, typically represented by government securities.

Risk Level

The degree of uncertainty and/or potential financial loss inherent in an investment decision.

Treasury Bills

Short-term government securities issued at a discount from face value and mature in a year or less, representing a safe and liquid investment option.

Risky Stock

A stock that carries a high level of volatility and uncertain returns, often associated with companies in emerging or highly competitive sectors.