ACCT CH 16
Wildhorse company purchased 6 year, 6% bonds that pay interest semiannually. The bonds are sold to yield 3%. One step in calculating the issue price of the bonds is to multiply the principal by the table value for
12 periods and 1.50% from the present value of table 1
Blossom purchased $2900000 of 8%, 5 year bonds from Sunland inc on January 1, 2025 with interest payable on July 1 and January 1. The bonds sold for 3020582 at an effective interest rate of 7%, Using the effective interest method, Blossom decreased the available for sale debt securities account for the Sunland bonds on July 1, 2025 by the amortized premiums of $10420 and $10780, respectively. At April 21, 2026, Blossom sold the Sunland bonds for $2990000. After accruing for interest the carrying value of the Sunland bonds on April 1, 2026 was $2997440. Assuming Blossom has a portfolio of available for sale debt securities, what should blossom report as gain or loss on the bonds?
2990000-2997440= (7440) Loss
held to maturity securities are reported at
Amortized cost.
Which of the following is not a debt security?
Loans receivable
When a company holds between 20% and 50% of the outstanding stock of an investee, which of the following statements applies?
The investor should use the equity method to account for its investment unless circumstances indicate that it is unstable to exercise "significance influence" over the investee
examples of debt securities
U.S. government securities, municipal securities, corporate bonds, convertible bonds, and commercial paper
KFG corporation purchased a 2% interest in the stock of Granger company as part of its equity securities portfolio. Concerning this investment, KFG will report
a current asset on its balance sheet, and dividend revenue and unrealized holding gains and losses on its income statement
When investments in debt securities are sold between interest payment dates, preferably the
accrued interest is credited to interest revenue
in accounting for investments in debt securities
any discount or premium is amortized
debt securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses as other comprehensive income and as a separate component of stockholders equity are
available for sale debt securities
investments in debt securities are usually recorded at
cost including brokerage and fees
Wildhorse company purchased $331000 of bonds for $346000. If Wildhorse intends to hold the securities to maturity, the entry to record investments includes
debit to Debt Investments 346000
Under the equity method of accounting for investments, an investor recognizes it share of earnings in the period in which the
earnings are reported by the investee in the financial statements
GAAP specifies that, regarding the amortization of a premium or discount on a debt security, the
effective interest method of allocation should be used but other methods can be applied if there is no material difference in the results obtained
Investments in debt securities should be recorded on the date of acquisition at
fair value plus brokerage fees and other costs incidental to the purchase
Debt securities that are accounted for at amortized cost, not fair value, are
held to maturity debt securities
A correct valuation for debt securities
held-to-maturity at amortized cost.
which of the following correct regarding the effective interest method of amortization
it must be used to amortize a discount or premium unless some other method yields a similar result
Which of the following securities could be classified as held to maturity
municipal bonds
equity securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses are
securities where a company has holdings of less than 20%
Unrealized holding gains or losses that are recognized in income are from debt securities classified as
trading
use of the effective interest method to amortize bond premiums and discounts results in
varying amount being recorded as interest income from period to period
