Smartbooks

Which of the following statements regarding the initial recognition of debt investments is correct?

All debt investments are initially recorded at cost.

At the time of acquisition, debt investments are recorded at

Cost

Interest received is calculated based on the _________ interest rate.

Face Stated

Equity and debt securities are commonly referred to as _____ instruments.

Financial or financing

Greenly Company acquired $40,000 face amount bonds of Neumann Company. Greenly can expect to receive the following cash flows from its investment.

Interest Principal

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 utilize the _______ interest rate to value the stream of cash flows associated with bond investments

Market

Interest revenue is calculated based on the _______ interest rate.

Market Effective

Investors use this interest rate to value investments in bonds:

Market interest rate

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

Which of the following are common financial instruments that are used to finance or expand a company's operations?

Preferred stock Common stock Corporate bonds

The price of a bond is equal to the

Present value of future cash receipts

The price of a bond is equal to

Present value of future interest payments plus present value of principal

Bonds typically provide two sources of cash flows to investors. These are associated with the payment of

Principal Interest

The premium on bond investment

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