Final answer:
The statement is true; the GAAP does require the effective interest method of amortization for transactions between parent and subsidiary companies.
Step-by-step explanation:
The statement 'The GAAP requires the effective interest method of amortization on transactions between parent and subsidiary companies' is True. Generally Accepted Accounting Principles (GAAP) recommend using the effective interest method for amortization of discounts or premiums on bonds or other financial instruments. This method results in a constant rate of interest over the life of the instrument, aligning interest expense with the carrying amount of the liability or asset over the term of the instrument. This is particularly relevant in intercompany transactions, including those between parent and subsidiary companies, to ensure accurate and consistent financial reporting.