QUIZ Chapter 10 Investments IN DEBT Securities IA 1 2020 Edition PDF

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P a g e | 1Chapter 10Investments in Debt SecuritiesNAME: Date: Professor: Section: Score:LONG QUIZ: If the acquisition cost of investment in bonds is less than the face amount, there is a. discount. b. premium. c. loss. d. gain. The use of the effective-interest method in amortizing bond premiums an...

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Chapter 10 Investments in Debt Securities NAME: Professor:

Section:

Date: Score:

LONG QUIZ: 1. If the acquisition cost of investment in bonds is less than the face amount, there is a. discount. b. premium. c. loss. d. gain. 2. The use of the effective-interest method in amortizing bond premiums and discounts results in a. a greater amount of interest income over the life of the bond issue than would result from use of the straight-line method. b. a varying amount being recorded as interest income from period to period. c. a variable rate of return on the book value of the investment. d. a smaller amount of interest income over the life of the bond issue than would result from use of the straight-line method. 3. If the effective interest rate is higher than the nominal rate, there is a. discount. b. premium. c. loss. d. gain. 4. The true or actual rate of interest that a bondholder earns on the investment. a. nominal rate c. effective interest rate b. coupon rate d. stated rate 5. It is a type of serial bond wherein the holder is given the right to extend the initial maturity to a longer maturity date. a. extendible bond c. redeemable bond b. retractable bond d. callable bond 6. Subsequent to their initial recognition, which financial assets with quoted market prices in an active market are measured at fair value? Financial assets Financial Assets with fair at amortized cost values through profit or loss a. Yes No b. Yes Yes c. No Yes d. No No 7. On January 1, 20x1, Impressed Co. acquired 8%, ₱1,000,000 face amount, 4-year ‘term’ bonds for ₱936,603. The bonds are measured at amortized cost and have a yield rate of 10%. How much is the carrying amount of the investment on December 31, 20x2? a. 1,000,000 b. 950,263 c. 965,289 d. 981,818 8. On October 1, Dennis Company purchased ₱200,000 face value, 12% bonds at 98 plus accrued interest and brokerage fees and classified them as amortized cost assets. Interest is paid

Page |2 semiannually on January 1 and July 1. Brokerage fees for this transaction were ₱700. At what amount should this acquisition of bonds be recorded? a. 196,000 b. 196,700 c. 202,000 d. 202,700 9. On August 1, 2004, Bettis Company acquired ₱120,000 face value, 10% bonds of Hanson Corporation at 104 plus accrued interest. The bonds were dated May 1, 2004, and mature on April 30, 2009, with interest payable each October 31 and April 30. The bonds are classified as subsequently measured at amortized cost. What entry should Bettis make to record the purchase of the bonds on August 1, 2004? a. Investment in bonds 124,800 Interest Revenue 3,000 Cash 127,800 b. Investment in bonds 127,800 Cash 127,800 c. Investment in bonds 127,800 Interest Revenue 3,000 Cash 124,800 d. Held-to-Maturity Securities 120,000 Premium on Bonds 7,800 Cash 127,800 10. On April 30, 20x1, Heidelberg Co. acquired ₱100,000 face amount, 10% bonds dated January 1, 20x1 at 102. The purchase price includes accrued interest. How much is the initial carrying amount of the investment? a. 102,000 b. 99,500 c. 98,667 d. 105,333 11. On January 1, 20x1, Honey Co. intends to buy 3-year, zero-coupon bonds with face amount of ₱3,000,000 and maturity value of ₱3,993,000. The effective interest rate is 16%. The bonds will be measured at amortized cost. How much is estimated purchase price of the bonds on January 1, 20x1? a. 2,299,341 b. 2,356,214 c. 2,558,146 d. 2,789,123 12. On January 1, 20x1, Santa Co. acquired 10%, ₱1,000,000 bonds at 92. Commission paid to brokers amounted to ₱9,100. The bonds are classified as investment measured at amortized cost. Principal is due on December 31, 20x3 but interest is due annually every December 31. The carrying amount of the investment on December 31, 20x1 is most approximately equal to a. 949,883. b. 958,364. c. 973,368. d. 938,341. 13. On January 1, 20x1, Solicit Co. acquired 12%, ₱1,000,000 bonds for ₱1,049,737. The principal is due on January 1, 20x4 but interest is due annually every December 31. The bonds are classified as investment measured at amortized cost. The yield rate on the bonds is 10%. On September 30, 20x2, all the bonds were sold at 110. Commission paid to the broker amounted to ₱10,000. How much is the gain (loss) on the sale? a. (67,686) b. 77,686 c. (77,686) d. (22,314) 14. On January 1, 20x1, MX Co. purchased 10%, ₱3,000,000 bonds for ₱3,105,726. The bonds are classified as financial asset measured at amortized cost. Principal on the bonds mature as follows: December 31, 20x1 1,000,000

Page |3 December 31, 20x2 December 31, 20x3, Total

1,000,000 1,000,000 3,000,000

Interest is due annually at each year-end. The effective interest rate on the bonds is 8%. How much is the current portion of the investment on December 31, 20x1? a. 1,051,542 b. 1,035,665 c. 2,054,184 d. 1,018,519 Use the following information for the next five questions: On January 1, 20x1, NFCPAR, Inc. acquired 10%, ₱1,000,000 bonds for ₱827,135. The bonds mature on December 31, 20x3 and pay annual interest every December 31. NFCPAR, Inc. incurred transaction costs of ₱80,000 on the acquisition. The effective interest rate adjusted for the effect of the transaction costs is 14%. The bonds are to be held under a “hold to collect and sell” business model. Information on fair values is as follows: December 31, 20x1…………………………….98 December 31, 20x2……………………………102 December 31, 20x3……………………………100 15. How much is the carrying amount of the investment on December 31, 20x1? a. 935,134 b. 1,002,000 c. 980,000 d. 965,443 16. How much is the unrealized gain (loss) recognized in other comprehensive income in 20x1? a. 45,866 b. (45,866) c. (37,899) d. 0 17. How much is the interest income recognized in 20x2? a. 126,999 b. 130,779 c. 135,088

d. 144,388

18. How much is the unrealized gain (loss) recognized in other comprehensive income on December 31, 20x2? a. 9,221 b. 40,000 c. (7,219) d. 0 19. Disregard the previous questions. Assume the bonds were sold for ₱900,000 on July 1, 20x2. How much is the total gain (loss) on the sale, including any reclassification adjustment to profit or loss? a. (50,000) b. 50,000 c. (95,389) d. (99,523) 20. On January 1, 20x1, Staircase Glass Co. purchased 10%, ₱1,000,000 callable bonds for ₱966,199. The bonds mature in 4 years’ time. Interest is due annually every Dec. 31. The investment is classified as financial asset measured at amortized cost. The effective interest rate is 12%. If the carrying amount of the investment on December 31, 20x1 is ₱982,143, what is the expected holding period for the investment? a. 4 years b. 3 years c. 2 years d. none of these “Do nothing out of selfish ambition or vain conceit. Rather, in humility value others above yourselves, not looking to your own interests but each of you to the interests of the others. In your relationships with one another, have the same mindset as Christ Jesus.” (Philippians 2:3-5) - END –...