When a Parent Buys Subsidiary Bonds:​

question 54

Multiple Choice

When a parent buys subsidiary bonds:​

• A)​The bonds become new investments/assets from a consolidated viewpoint and no elimination is necessary.
• B)​The bonds become new investments/assets but the parent company may not retire subsidiary bonds by lending money.
• C)​Intercompany interest expense/revenue and accrued interest receivable/payable are not eliminated as the new investments to the parent company and the new debt to the subsidiary company needs to be separately shown when consolidation occurs.
• D)​The bonds are retired when consolidation occurs by elimination and in periods after the purchase need to be eliminated and retained earnings adjustment for any retirement gain or loss that has not been amortized.

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Definitions:

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