You Hear the Following Statement Made at a Conference

question 22

Multiple Choice

You hear the following statement made at a conference:
'If, on 1 September 20X3 a company lent money to its wholly owned subsidiary, with interest payable annually in arrears for five years; then the only journal entry required when preparing the consolidated profit or loss statement for the year ending 30 June 20X5 would be to debit the interest income account and credit the interest expense account.'
This statement is:

• A)correct, because no other entries are required
• B)incorrect, because the interest income has to be credited and interest expense debited.
• C)incorrect, because the interest revenue and the interest expense do not have to be eliminated
• D)incorrect, because the asset and the liability have to be eliminated also

---

Definitions:

Savings

Money set aside for future use rather than spending immediately, often in accounts designed for long-term growth or security.

Disposable Income

Post-tax income households possess for saving or spending purposes.

Disposable Income

Disposable income refers to the sum of money that families can use for expenditures and savings once income taxes are deducted.

MPS (Marginal Propensity to Save)

The proportion of an increase in income that an individual or population saves rather than spends on consumption.