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.

Question

Quizplus · Accepted Answer

When a parent acquires its subsidiary's bonds at less than their carrying value, it results in a gain on constructive retirement of the debt. This gain should be added to the subsidiary's net income in the consolidated financial statements, as it reflects a reduction in the group's liabilities at a cost lower than their recorded amount.

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