Final answer:
A constructive retirement of parent bonds does not automatically occur when an affiliate purchases outstanding bonds of the parent; specific criteria must be met.
Step-by-step explanation:
The statement that a constructive retirement of parent bonds occurs when an affiliate purchases outstanding bonds of the parent is False. In corporate finance, constructive retirement refers to a theoretical bookkeeping transaction where a parent company is deemed to retire its bond if its consolidated affiliate buys them, on the assumption that intercompany obligations are effectively settled. However, under official accounting standards, the purchase of bonds by an affiliate does not necessarily result in constructive retirement unless specific criteria are met, such as the affiliate having the express intention and ability to retire the bonds, and the surrender of the bonds is practically assured.