Intermediate YUN KE CHAPTER 12
If a bond sells for less than its maturity value, the bond sells at a
discount
An investor that owns between ___ and ___ percent of the voting stock of an investee is assumed to have significant influence over the investee. Multiple choice question.
20; 50
Equity and debt securities are commonly referred to as _____ instruments.
Financial
During the current period, Muenster Company amortized $5,000 of discount relating to its investment in debt securities. The company's amortization next period should be ______ the current period.
Higher
Unrealized gains and losses on AFS debt securities must be recognized in:
OCI
All debt investments are initially recorded at cost.
TRUE
The premium on bond investment
increases the carrying value of the bond to its cost at date of purchase
If the interest rate paid on a bond is lower than the market interest rate, the bond will sell for an amount that is
less than its maturity value
Investors use this interest rate to value investments in bonds:
market interest rate
Interest revenue is calculated based on the ______interest rate
market or effective
The price of a bond is equal to the Multiple choice question.
present value of future cash receipts.
Identify critical events that companies experience with respect to equity investments that must be recognized in the accounting system. (Select all that apply.)
purchase of investment receiving dividends changes in fair value sale of investment
The discount on bond investment (Select all that apply.)
-is a contra-asset account -reduces the carrying value of the bond to its cost at date of purchase
An investor who owns more than 50% of the outstanding voting stock of an investee company is assumed to have Multiple choice question.
CONTROL
Which of the following is the most important concept or principle that explains the differences in reporting holding gains and losses?
Relevance
Which of the following types of debt investments are reported at fair value?
TRADING and available for sale
Marlon Company recognizes interest revenue of $5,400 related to its bonds; its periodic bond interest payment receipts are $5,200. The bonds must have issued at:
a discount
If the market rate of interest decreases after a bond is purchased, the bond incurs
an unrealized holding gain
If the market rate of interest rises after a bond is purchased, the bond incurs Multiple choice question.
an unrealized holding loss
Master Company owns 15% of the outstanding voting stock of Sell Company. Master should Multiple choice question.
apply the fair value through net income method.
Unless information to the contrary exists, an investor is assumed to have significant influence over the investee company if the investor holds an ownership interest Multiple choice question.
between 20% and 50%
Which of the following are possible categories for the purpose of classifying investments in the stock of another company?
control no significant influence or control significant influence
On the date of acquisition, an investment in bonds should be recorded at:
cost
Interest received is calculated based on the _____ interest rate.
face or stated
For discounted bonds, interest revenue is ____ cash interest each interest period.
greater than
Over the life of the investment, amortization of a discount
increases each period
The primary reasons why holding gains and losses relating to held-to-maturity securities are not recognized even though they are recognized for trading and AFS securities probably is that the information is
less relevant
Investors utilize the ______, Correct interest rate to value the stream of cash flows associated with bond investments.
market
Which of the following minimum ownership percentages is typically necessary to control another entity's operating and financial policies? Multiple choice question.
more than 50%
If the interest rate paid on a bond exceeds the market interest rate, the bond will sell for an amount that is
more than its maturity value.
The price of a bond is equal to
present value of future interest payments plus present value of principal
The price of a bond is equal to Multiple choice question.
present value of future interest payments plus present value of principal
Greenly Company acquired $40,000 face amount bonds of Neumann Company. Greenly can expect to receive the following cash flows from its investment. (Select all that apply.)
principal and interest
A key factor determining the accounting for equity investments is
the extent to which the investor can influence the investees activities.
If the market rate of interest decreases after a bond is purchased, the bond incurs Multiple choice question.
unrealized holding gain
Which of the following events is of little importance if an investment in debt securities is held to maturity. Multiple choice question.
Changes in fair value during the holding period
Which of the following are common financial instruments that are used to finance or expand a company's operations? (Select all that apply.)
Common stock Corporate bonds Preferred stock
Merkel Company invested in Sub Company and is able to exert significant influence over the operating and financial policies of Sub Company. Merkel should
Equity method
Over the life of the investment, amortization of a discount Multiple choice question.
increases each period
Greenly Company acquired $40,000 face amount bonds of Neumann Company. Greenly can expect to receive the following cash flows from its investment. (Select all that apply.)
principal interest
From an accounting perspective, critical events that investors experience over the life of an investment include (
receiving dividends changes in fair value sale of investment
Identify critical events that companies experience with respect to equity investments that must be recognized in the accounting syste
receiving dividends changes in fair value sale of investment purchase of investment
From an accounting perspective, critical events that investors experience over the life of an investment include
receiving dividends sale of investment changes in fair value