int 2 ch 12 pt 1

Gerhard Company purchases debt investments for $200,000 and classifies them as available-for-sale securities. At the end of the accounting period, the fair value has increased to $207,000. Gerhard should report its investment at

$207,000.

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 received for the first 6-month period:

$3,000

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.)

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

On December 31, 2021, Sparrow Company has bonds with an amortized cost of $424,000 and a fair value of $452,000. These bonds are properly classified as AFS securities. On January 12, 2022, Sparrow sells the bonds for $450,000. Just prior to recording the sale on January 12, 2022, the journal entry to adjust the bonds to fair value will include

A debit to unrealized holding loss - OCI $2,000

Which of the following is the most important concept or principle that explains the differences in reporting holding gains and losses?

Relevance

Ricardo Company chose the fair value option (FVO) for accounting for a new investment in AFS debt securities. Which of the following statements is correct?

Ricardo's choice is irrevocable

Under U.S. GAAP, which of the following statements regarding the classification of debt investments is correct?

The classification of investments must be reassessed each reporting period

Which of the following is correct regarding the fair value option?

The election is irrevocable. The election can be applied to selected securities.

True or false: Rather than debiting or crediting the investment account, fair value adjustments for trading securities are typically recognized in a separate account.

True

rue or false: Rather than debiting or crediting the investment account, fair value adjustments for trading securities are typically recognized in a separate account. True false question.

True

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

Consistent with IFRS, the fair value method may be chosen to avoid

accounting mismatch

Porter Company classified its debt investment in Bailey Company as an available-for-sale security. Subsequent to the purchase, the fair value of the investment increased by $5,000. The result of this increase in value will be

an increase in other comprehensive income.

Debt investments that will not be held for their entire life or sold in the very near future are referred to as

available-for-sale securities

Holding gains and losses are unrealized because the related investment has not Multiple choice question.

been sold

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.)

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

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.)

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

Lucky Company invested in debt securities and classified them as HTM. At the end of the accounting period, the value of the investment appreciated by $10,500. The company should

disclose the fair market value in the notes.

For held-to-maturity debt instruments, the difference between fair value and amortized cost must be ___ in a ___ to the financial statements.

disclosed notes

The appropriateness of the classification of debt investments must be reassessed

each reporting date

Interest received is calculated based on the ___ market

face or stated

The fair value option can be applied to

financial liabilities financial assets

For discounted bonds, interest revenue is ____ cash interest each interest period.

greater than

f an investor has the positive intent and ability to hold a debt security until it matures, it should be classified as a(n) Multiple choice question.

held-to-maturity security.

Fair value adjustments for trading securities are typically recognized

in a separate valuation account.

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

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

Changes in the fair value are more relevant for trading debt securities than for held-to-maturity debt securities because they provide an indication of Multiple choice question. the riskiness of the investments.

management's success at investing

Unrealized gains and losses on AFS debt securities must be recognized in

other comprehensive income

Consistent with IFRS, the fair value option is:

permitted only in specific circumstances

An investor who purchased corporate bonds that are not publicly traded may estimate the bonds' fair value by determining the Multiple choice question.

present value of the future cash flows

Under the fair value option, unrealized gains and losses on debt securities are

recognized in net income

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

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

When accounting for the sale of AFS debt securities, how are unrealized gains reversed? (Select all that apply.)

credit the fair value adjustment account debit a reclassification adjustment

Debt investments in available-for-sale securities are reported at

fair value

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

All debt investments are initially recorded at cost.

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 AFS securities. Prior to recording the sale, the journal entry to adjust the bonds to fair value includes (Select all that apply.)

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