Question

Constructive retirement means that bonds are retired for consolidated statement purposes because the bond investment and payable items of the parent and the subsidiary are reciprocals that must be eliminated in consolidation.

a)True
b)False

Answer 1

Constructive retirement of bonds pertains to the elimination of reciprocal bond investment and payable items in consolidation accounting, which is true for consolidated statement purposes.

Step-by-step explanation:

Constructive retirement of bonds is a consolidation accounting concept stating that when a parent company and its subsidiary have reciprocal bond investment and payable items, they cancel each other out. Therefore, for consolidated statement purposes, these items are eliminated as if the bonds have been retired. This concept is different from individual retirement plans such as 401(k)s and 403(b)s, which are types of defined contribution plans. In a 401(k) or 403(b) plan, an employer contributes a fixed amount to the employee's retirement account, the employee may contribute as well, and the funds can be invested in various ways. These plans offer tax benefits and portability, unlike traditional pension plans, thus protecting retirees from inflation.