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

question 20

Multiple Choice

Company S is a 100%-owned subsidiary of Company P.Company S has outstanding 6%, 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:

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