To Eliminate Intercompany Bonds and Interest Expense of Consolidated Companies

question 42

Multiple Choice

To eliminate intercompany bonds and interest expense of consolidated companies, Company P (Parent) and Company S (Subsidiary) which of the following is correct?

• A)​Debit Interest Expense and credit Interest Income and credit Bonds Payable and debit Investment in Company S
• B)​Credit Interest Expense and debit Interest Income and credit Bonds Payable and debit Investment in Company S
• C)​Debit Interest Income and credit Interest Expense and debit any related Loss on Bond Retirement, if any, and debit Bonds Payable and credit Investment in Company S Bonds
• D)​Debit Subsidiary Income and credit Investment in Company S Stock

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Definitions:

Genet

Edmond-Charles Genêt, a French diplomat who caused a controversy in 1793 by violating diplomatic protocol in the United States during the French Revolutionary Wars.

Neutrality Pact

An agreement between states to remain neutral, especially in a conflict, neither supporting nor opposing any side involved.

Execution

The act of carrying out a plan, order, or course of action; in a legal context, it refers to the carrying out of a death sentence.

Republicanism

A political ideology centered around the concept of a republic, where the government's authority comes from the people and is exercised by elected representatives.