Question

In: Accounting

The purchase of outstanding subsidiary bonds by the parent company has the same impact on consolidated...

The purchase of outstanding subsidiary bonds by the parent company has the same impact on consolidated statements as:

a.

the subsidiary retiring its own debt with the proceeds of new debt issued to outside parties.

b.

the subsidiary retiring the debt with the proceeds of a loan from the parent.

c.

the subsidiary retiring the debt with the proceeds of a new stock issue.

d.

allowing the bonds to continue to be held by outside interests

Explain.

Solutions

Expert Solution

Answer is option (b). the subsidiary retiring the debt with the proceeds of a loan from the parent.

Explanation;

The purchase of outstanding subsidiary bonds by the parent company has the same impact on consolidated statements as the subsidiary retiring the debt with the proceeds of a loan from the parent. It is because when parent company purchase outstanding subsidiary bonds then consolidated statement will include same amount of outstanding bonds.

Now let’s see option (b). In this case also outstanding bonds will be discharged but loan amount from parent will have same impact on consolidated statement. Hence in this option also loan from parent company will have same impact on the consolidated statement.

Hence it is true that when subsidiary retiring the debt with the proceeds of a loan from the parent then it will have same impact on the consolidated statements as in case of purchase of outstanding subsidiary bonds by the parent company.

ekkarill92 answered 2 years ago
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