At the End of the Year,a Parent Acquires a Wholly

question 37

Multiple Choice

At the end of the year,a parent acquires a wholly owned subsidiary's bonds from unaffiliated parties at a cost less than the subsidiary's carrying value.The consolidated net income for the year of acquisition should include the parent's separate operating income plus:

• A)the subsidiary's net income increased by the gain on constructive retirement of debt.
• B)the subsidiary's net income decreased by the loss on constructive retirement of debt.
• C)the subsidiary's net income increased by the gain on constructive retirement of debt,and decreased by the subsidiary's bond interest expense.
• D)the subsidiary's net income decreased by the loss on constructive retirement of debt,and decreased by the subsidiary's bond interest expense.

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Definitions:

Costs

Expenses incurred in the process of creating, manufacturing, or providing a service or product, including fixed, variable, and semi-variable costs.

Controllable Margin

Contribution margin less controllable fixed costs.

Controllable Fixed Costs

Fixed costs that management has the ability to influence or change in the short term.

Profit Center

A responsibility center that incurs costs and also generates revenues.