Chapter 6-Debt Investment Theory Questions PDF

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Chapter 6: Debt Investments FINANCIAL ACCOUNTING THEORY QUESTIONS Debt investments at amortized cost are reported after initial recognition at a. acquisition cost. b. fair value. C amortized cost using straight-line method. d. amortized cost using effective interest method. Under PFRS 9, the classif...

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Chapter 6: Debt Investments FINANCIAL ACCOUNTING THEORY QUESTIONS

1. Debt investments at amortized cost are reported after initial recognition at a. acquisition cost. b. fair value. C amortized cost using straight-line method. d. amortized cost using effective interest method.

2. Under PFRS 9, the classification of debt investments shall be made on the basis of a. the business model for managing the financial asset. b. contractual cash flow characteristics of the financial asset. c. management's intention of holding the debt instruments. d. both the business model for managing the financial asset and the contractual cash flow characteristics of the financial asset.

3. An investor purchased debt investments at amortized cost on January 1. Annual interest was received on December 31. The investor's interest income for the year would be lower than the annual interest received if the debt instrument was purchased at a. a discount. b. a premium. c. par. d. face value.

4. A debt investment at fair value through profit or loss is reclassified to debt investment at amortized cost. What amount is used at the transfer date to record the security in the amortized cost classification?

a. At amortized cost at date of reclassification b. At fair value at date of reclassification and difference between carrying amount and fair value is taken to profit or loss. c. At fair value at date of reclassification and difference between carrying amount and fair value is taken to other comprehensive income d. At fair value at date of reclassification

5. Interest revenue for debt investments at fair value through profit or loss is computed based on the instruments' a. carrying amount using the effective interest rate. b. carrying amount using the nominal interest rate. c. face value using the effective interest rate. d. face value using the nominal interest rate.

6. Interest revenue for debt investments at amortized cost is computed based on the instruments' a. carrying amount using the effective interest rate. b. carrying amount using the nominal interest rate. c. face value using the effective interest rate. d. face value using the nominal interest rate.

7. When there is an objective evidence of impairment in value of debt investments measured at amortized cost, the carrying amount of the asset shall be reduced either directly or through the use of an allowance and the amount of the loss shall be a. ignored. b. recognized in equity. c. recognized in profit or loss.

d. deferred until the date of derecognition.

8. If in subsequent period, there is objective evidence of recovery in impairment debt investments measured at amortized cost, the previously recognized for amount of the reversal a. shall not be recognized. b. shall be recognized in profit or loss. c. shall be recognized in equity. d. shall be recognized when the asset is derecognized.

9. No amortization of premium or discount is required for this class of debt investment.

a.At amortized cost and at fair value through profit or loss b. At amortized cost c. At fair value through profit or loss d. Neither at amortized cost nor at fair value through profit or loss

10. How is the premium or discount on debt investments at fair value through profit or loss accounted for? a. As part of amortized cost and amortized over the life of the bonds. b. As part of the cost until the disposal of the asset. c. As expense or revenue in the period the bonds are purchased. d. All of the above.

11. All of the following are characteristics of debt securities, except. a. They have a maturity value.

b. They have an interest rate that specifies the periodic interest payment. c. They have a maturity date. d. They have a conversion privilege.

12. The use of the effective interest method in amortizing bond premium and discount results in a. a varying amount being recorded as interest income from period to period. b. uniform/constant amount of interest income from period to period. c. varying rate of interest being recorded as interest income from period to period. d. amount of interest income similar to the interest received from period to period.

13. The interest income reported for a debt investment at amortized cost initially acquired at a premium is equal to a. the effective interest rate multiplied by the face amount of the bond investment b. the stated interest rate multiplied by the face amount of the bond investment c. the effective interest rate multiplied by the carrying amount of the bond investment at the beginning of the year d. the stated interest rate multiplied by the carrying amount of the bond investment at the beginning of the year

14. Bonds with a par value of P5.0 million carrying a stated interest rate of 12% payable semi-annually on March 1 and September 1 were purchased on August 1. The total payments made for the purchase amounted to P5,200,000. The best explanation for the excess amount paid over par value is that a. the bonds were purchased at a premium. b. the bonds were purchased at a discount plus accrued interest.

c. the bonds were purchased at par value plus accrued interest. d. no explanation is possible without knowing the maturity date of the bond issue.

15. For an investment in debt securities portfolio at amortized cost, which of the following amounts should be included in the period's profit or loss? I. Gains and losses during the period as a result of change in fair value. II. Amortization of discount or premium III. Interest received and accrued a. I and II b. Ill c. II and III d. I and III

16. Which of the following is correct about the effective-interest method of amortization?

a. The effective interest method applied to investments in debt securities is different from that applied to bonds payable. b. Amortization of a discount decreases from period to period. c. Amortization of a premium decreases from period to period. d. The effective-interest method produces a constant rate of return on the carrying amount of the investment from period to period.

17. Securities which could be classified as amortized cost are a.preferred stock. b.warrants. c. municipal bonds. d. treasury stock.

18. When an investor's accounting period ends on a date that does not coincide with an interest receipt date for bonds held as an investment, the investor must a. make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for the amount of interest accrued since the last interest receipt date. b. notify the issuer and request that a special payment be made for the appropriate portion of the interest period. c. make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for the total amount of interest to be received at the next interest receipt date. d. do nothing special and ignore the fact that the accounting period does not coincide with the bond's interest period.

19. Which of the following is not correct in regard to trading securities? a. They are held with the intention of selling them in a short period of time. b. Unrealized holding gains and losses are reported as part of net income. C. Any discount or premium is not amortized. d. All of these are correct.

20. An investor purchased ten-year, 10% bonds that pay interest semiannually. The bonds are sold to yield 8%. One step in calculating the issue price of the bonds is to multiply the principal by the table value for a. 10 periods and 10% from the present value of 1 table. b. 10 periods and 8% from the present value of 1 table. c. 20 periods and 5% from the present value of 1 table.. d. 20 periods and 4% from the present value of 1 table.

21. Which of the following is not generally correct about recording a sale of a debt security before i maturity date? a. Accrued interest will be received by the seller even though it is not interest payment date.

b. An entry must be made to amortize a discount to the date of sale. c. The entry to amortize a premium to the date of sale includes a credit to the Premium on Investments in Debt Securities. d. gain or loss on the sale is not extraordinary.

22. Companies that attempt to exploit inefficiencies in various derivative markets by attempting to lock in profits by simultaneously entering into transactions in two or more markets are called a. arbitrageurs. b. gamblers. c hedgers. d. speculators.

23. Which of the following is generally not a purpose for acquiring investments? a. As a main source of income b. To establish long-term relationship with suppliers and customers c. To acquire control or significant influence over another entity d. To accumulate funds for future use.

24. Which of the following financial assets are assessed for impairment? a Equity investments at FVPL b. Equity investments at FVOCI C. Debt investments at FVPL d. Debt investments at amortized cost and debt investments at FVOCI.

25. Impairments of debt investments at amortized cost are a. recognized as component of OCI.

b. based on fair value for nontrading investments. c. based on discounted contractual cash flows d. evaluated at each reporting date....