P Co. purchased term bonds at a premium on the open market. These bonds represented 20% of the outstanding class of bonds issued at a discount by S Co., P’s wholly owned subsidiary. P intends to hold the bonds until maturity. In a consolidated balance sheet, the difference between the bond carrying amounts in the two companies would

  1. Decrease retained earnings.
  2. Increase retained earnings.
  3. Be reported as a deferred debit to be amortized over the remaining life of the bonds.
  4. Be reported as a deferred credit to be amortized over the remaining life of the bonds.