To eliminate intercompany bonds and interest expense of consolidated companies, Company P (Parent) and Company S (Subsidiary) which of the following is correct?

Question

Quizplus · Accepted Answer

To eliminate intercompany bonds and interest expense of consolidated companies, the following journal entry should be made:

Debit Interest Income and credit Interest Expense (to eliminate the intercompany interest expense)
Debit any related Loss on Bond Retirement, if any (to eliminate any loss on bond retirement)
Debit Bonds Payable and credit Investment in Company S Bonds (to eliminate the intercompany bonds)

Option A and B are incorrect because they do not eliminate the intercompany bonds, and they do not eliminate any potential loss on bond retirement. Option D is incorrect because it does not address the elimination of intercompany bonds or interest expense.

To Eliminate Intercompany Bonds and Interest Expense of Consolidated Companies