Question: P Co. purchased term bonds at a premium on the open market. These bonds represented 20% of the outstanding class of bonds issued at a

P Co. purchased term bonds at a premium on the open market. These bonds represented 20% of the outstanding class of bonds issued at a discount by S Co., P’s wholly owned subsidiary. P intends to hold the bonds until maturity.

In a consolidated balance sheet, the difference between the bond carrying amounts in the two companies would

a. Decrease retained earnings.

b. Increase retained earnings.

c. Be reported as a deferred debit to be amortized over the remaining life of the bonds.

d. Be reported as a deferred credit to be amortized over the remaining life of the bonds.

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