Final answer:
When a parent company pays more than the book value of a subsidiary's debt, a constructive gain is realized on the consolidated financial statements.
Step-by-step explanation:
If the price paid by a parent company to acquire the debt of a subsidiary is greater than the book value of the liability, a constructive gain on the retirement of debt from the viewpoint of the consolidated entity occurs. This is because the consolidated financial statements reflect the perspective of the entire corporate entity as one, and in the process of acquiring the subsidiary's debt at a price higher than its book value, the parent company effectively realizes a gain. Essentially, the excess amount is considered as income for the consolidated entity, since internally held debt is eliminated on consolidation.