Parent Company has three wholly-owned subsidiaries. Each of the subsidiaries has

Question

  Parent Company has three wholly-owned subsidiaries. Each of the subsidiaries has an account “Long-term Debt Payable to Parent Company,” with a balance due. Parent Company has long-term debt due to banks. Which of the following best describes why subsidiaries may borrow long-term from a parent company?

a.   The subsidiary is able to borrow from banks at a lower interest rate.

b.   The parent is able to borrow from banks at a lower interest rate.

c.   The parent company wishes to decentralize asset management and credit control.

d.   The parent company is seeking to eliminate long-term debt.

Explanation / Answer

Answer to the Question

Point b is describes best why subsidiaries may borrow long-term from a parent company

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