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Quiz_3_Week_4_Students[1] (2) - Week 4 Quiz Chapter 5...

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Week 4 Quiz Chapter 5 Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. The usual impetus for transactions that create a long-term debtor-creditor relationship between members of a consolidated group is due to the: a. subsidiary's ability to borrow larger amounts of capital at more favorable terms than would be available to the parent. b. parent's ability to borrow larger amounts of capital at more favorable terms than would be available to the subsidiary. c. parent's desire to decentralize asset management and credit control. d. parent's desire to eliminate long-term debt. ____ 2. The motivation of a parent company to purchase the outstanding bonds of a subsidiary could be to: a. replace the existing debt with new debt at a lower interest rate. b. reduce the parent company's acquisition price for the subsidiary. c. increase the parent company's ownership percentage in the subsidiary. d. create interest revenue to offset interest expense in future income statements. ____ 3. 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. ____ 4. Company S is a 100%-owned subsidiary of Company P. Company S has outstanding 6%, 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.
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Quiz_3_Week_4_Students[1] (2) - Week 4 Quiz Chapter 5...

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