Question
Company S is a 100%-owned subsidiary of Company P. Company S has outstanding 8%, 10-year bonds sold to yield 7%. On January 1 of the
Company S is a 100%-owned subsidiary of Company P. Company S has outstanding 8%, 10-year bonds sold to yield 7%. On January 1 of the current year, Company P purchased all of the Company S outstanding bonds at a price that reflected the current 9% effective interest rate. How should this event be reflected in the current year's consolidated statements? a. The bonds remain in the balance sheet and are accounted for at a 7% effective rate. b. The bonds remain in the balance sheet and are accounted for at a 9% effective rate. c. Retirement of the bonds at a gain as of the purchase date. d. Retirement of the bonds at a loss as of the purchase date.
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