Chp. 12 Smartbook

credit to fair value adjustment $1,000 credit investment in bonds $100,000 debit to cash $99,000 debit to discount $2,000

Action Company sells bond investments classified as trading securities for $99,000. The face amount is $100,000; unamortized discount is $2,000. What must be included in the journal entry to record the sale? (Select all that apply.) Multiple select question.

cost

At the time of acquisition, debt investments are recorded at?

$22,000.

Bella Company purchased debt securities with a face amount of $500,000 for $480,000 and classifies them as trading securities. During the first year, the company amortized $2,000 of the associated discount. At the end of the period, the fair value is $504,000. Bella should recognize a fair value adjustment of $18,000. $20,000. $22,000.

investing

Cash flows from buying and selling held-to-maturity securities are typically classified as _____ activities on the Statement of Cash Flows.

3%. Reason: Interest received uses the stated rate and the bonds are semi-annual so 6%/2

Emil Company purchases $400,000 face amount, 6% semi-annual bonds when the market rate is 8%. The rate used to determine interest received for the first 6 months on the investment is

an unrealized holding loss

If the market rate of interest rises after a bond is purchased, the bond incurs

stated

Interest received is calculated based on the........interest rate.

market interest rate

Investors use this interest rate to value investments in bonds

$2,750 Reason: $110,000 x (5% x 6/12)

Margot Company purchases $100,000 face amount, 6% semi-annual bonds for $110,000 when the market interest rate is 5%. Margot should recognize the following interest revenue for the first 6-month period:

debit cash $3,000 credit interest revenue $2,750 credit premium on bond investment $250

Margot Company purchases $100,000 face amount, 6% semi-annual bonds for $110,000 when the market interest rate is 5%. The journal entry to record the interest for the first 6-month period includes (Select all that apply.)

$500,000 to investments in HTM securities. $40,000 to gain from sale of investment.

Marian Company's records show the following account balances at 2/1/18: Investment in HTM securities, $500,000; and discount on HTM investment, $20,000. On that day, the company sells the investment for $520,000. The journal entry would include credits of (Select all that apply.)

$20,000 to discounts. $520,000 to cash.

Marian Company's records show the following account balances at 2/1/18: Investment in HTM securities, $500,000; and discount on HTM investment, $20,000. On that day, the company sells the investment for $520,000. The journal entry would include debits of (Select all that apply.)

credit to unrealized holding gain on trading securities - net income $5,000 debit to fair value adjustment $5,000.

Northern Company has bonds with an amortized cost of $600,000. At the end of the first reporting period, the bonds had a fair value of $675,000. 2 days after the end of the first reporting period, the bonds have a fair value of $680,000 and Northern decides to sell the bonds. Northern properly classifies these bonds as trading securities. Prior to recording the sale, the journal entry to adjust the bonds to fair value includes (Select all that apply.)

debit cash $2,500 credit interest revenue $2,850 debit discount on bond investment $350

On December 31, 2021, Gardner Company holds debt securities classified as HTM with a face amount of $100,000 and a carrying value of $95,000. The bonds have an effective interest rate of 6% and pay interest of $2,500 semi-annually on June 30 and December 31. The journal entry to record the interest payment on December 31, 2021 includes (Select all that apply.)

3.5%.

Otto Company purchases $200,000 face amount, 8% semi-annual bonds when the market rate is 7%. The rate used to determine interest revenue for the first 6 months on the investment is

increases each period.

Over the life of the investment, amortization of a discount

reduces the carrying value of the bond to its cost at date of purchase is a contra-asset account

The discount on bond investment (Select all that apply.)

increases the carrying value of the bond to its cost at date of purchase

The premium on bond investment (Select all that apply.) Multiple choice question. increases the carrying value of the bond to its cost at date of purchase reduces the carrying value of the bond to its cost at date of purchase

present value of future interest payments plus present value of principal

The price of a bond is equal to?

current assets.

Trading securities typically are classified in the balance sheet as?

Changes in fair value during the holding period

Which of the following events is of little importance if an investment in debt securities is held to maturity.