A Parent Acquired All of the Stock of a Subsidiary

Multiple Choice

A parent acquired all of the stock of a subsidiary. The subsidiary had originally issued long-term debt when the market rate of interest was 3%. The market rate of interest for the debt at the date of acquisition was 5%. How does the change in market interest rate affect the consolidated financial statements?

A) Goodwill is lower.
B) Acquired long-term debt is valued at a higher amount.
C) Future interest expense is lower.
D) There is no effect on consolidated account balances.