If the Price Paid by a Parent Company to Acquire

question 5

Multiple Choice

If the price paid by a parent company to acquire the debt of a subsidiary is greater than the book value of the liability,a ________ occurs.

• A)realized loss on the retirement of debt from the viewpoint of the subsidiary
• B)realized gain on the retirement of debt from the viewpoint of the subsidiary
• C)constructive loss on the retirement of debt from the viewpoint of the consolidated entity
• D)constructive gain on the retirement of debt from the viewpoint of the consolidated entity

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Definitions:

Stockholders' Equity

The ownership interest of shareholders in a corporation, calculated as total assets minus total liabilities.

Debt-To-Equity Ratio

A ratio that demonstrates the mix of shareholder equity versus debt financing employed to fund a company's assets.

Long-Term Liabilities

Financial obligations of a company that are due beyond one year, including bonds payable, long-term loans, and lease obligations.

Working Capital

The difference between current assets and current liabilities, indicating the short-term financial health of a business.