A Subsidiary Has Outstanding $100,000 of 8% Bonds That Were

question 40

Multiple Choice

A subsidiary has outstanding $100,000 of 8% bonds that were issued at face value.The parent purchased all the bonds for $96,000 with 5 years remaining to maturity.How will the parent's use of the effective interest amortization rather than straight-line amortization of the discount affect the consolidated financial statements?

• A)​The consolidated financial statements report the same information whether the parent uses straight-line or effective interest amortization on its investment in sub's bonds.
• B)​Will result in a different gain on retirement
• C)​Will result in more interest expense in the first year after the intercompany purchase.
• D)​Will result in less interest expense in the first year after the intercompany purchase.

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