Straight-line interest amortization of bond premiums and discounts is used as an expedient in this book. However, the effective interest rate method is generally required under GAAP. When using the effective interest rate method:

a. The amount of the piecemeal recognition of a constructive gain or loss is the difference between the intercompany interest expense and income that is eliminated.

b. The piecemeal recognition of a constructive gain or loss is recorded in the separate accounts of the affiliates.

c. No piecemeal recognition of the constructive gain or loss is required for consolidated statement purposes.

d. The issuing and the purchasing affiliates do not amortize the discounts and premiums on their separate books because the bonds are retired.