Question :
31. A firm records debt securities purchased at the acquisition cost. : 1230364
31. A firm records debt securities purchased at the acquisition cost. The acquisition cost will differ from the _______ of the debt if the __________on the bonds differs from the required ________ on the bonds at the time the firm acquired them.
A. market value; coupon rate; market yield
B. market value; discount rate; coupon yield
C. maturity value; coupon rate; market yield
D. maturity value; discount rate; market yield
E. maturity value; discount rate; coupon yield
32. A firm records debt securities purchases at the acquisition cost. The firm must use the _____ method to amortize any difference between acquisition cost and maturity value over the life of the debt as an adjustment to _____
A. market value, interest revenue
B. market value, interest expense
C. effective interest; interest revenue
D. effective interest; interest expense
E. maturity value; interest expense
33. Firms sometimes acquire debt securities with the intention of holding these securities until maturity. U.S. GAAP and IFRS require firms to measure marketable securities for which firms have an intent and ability to hold to maturity at _____. A firm initially records these debt securities at acquisition cost. This acquisition cost will differ from the maturity value of the debt if the coupon rate on the bonds differs from the _____.
A. the imputed interest method; required market yield on the bonds at the time the firm acquired them
B. the straight-line method; required market yield on the bonds at the time the firm acquired them
C. the effective interest method; required market yield on the bonds at the time the firm acquired them
D. the effective interest method; required market yield on the bonds at the time the bonds were originally issued.
E. the straight-line method; required market yield on the bonds at the time the bonds were originally issued.
34. Using the amortization procedure, the holder of the debt securities (the investor) records interest revenue each period at an amount equal to the _____ at the start of the period multiplied by the _____ applicable to that debt on the day the firm acquired the debt. The bonds are classified as held to maturity.
A. carrying value of the debt; market rate of interest
B. market value of the debt; market rate of interest
C. carrying value of the debt; applicable federal rate of interest
D. present value of the debt; market rate of interest
E. present value of the debt; applicable federal rate of interest
35. Using the amortization procedure for bonds, if an investor receives cash each period, it debits Cash and credits the Marketable Securities account. The result of this process is a new _____ (called the _____ for use in the computations during the next period. The bonds are classified as held to maturity.
A. market value; market price
B. carrying value; amortized cost
C. present value; present value of future cash flows
D. market value; present value of future cash flows
E. carrying value; present value of future cash flows
36. Using the amortization procedure, a holder of the debt securities (the investor) records interest revenue each period by debiting the _____ and crediting _____ which after closing entries increases _____ The bonds are classified as held to maturity.
A. Marketable Securities account; Interest Revenue; Retained Earnings
B. Interest Revenue; Retained Earnings; Marketable Securities account
C. Retained Earnings; Marketable Securities account; Interest Revenue
D. Marketable Securities account; Interest Expense; Retained Earnings
E. Common Stock account; Interest Expense; Retained Earnings
37. The U.S. government will pay Humphrey $2,500,000 each six months, equal to 2.5% of the $100 million face amount of the treasury bonds (5% annual coupon rate, paid in two installments each year), and will repay the $100 million at the end of five years. At the time Humphrey purchases the bonds, the market prices these bonds to yield Humphrey 6% annually (3% each six months). The bonds are classified as held to maturity. Because the market requires a _____ than the _____ on the bonds, the bonds will sell on the market for a _____.
A. lower yield; stated interest rate; premium
B. lower yield; market interest rate; premium
C. higher yield; stated interest rate; discount
D. lower yield; stated interest rate; discount
E. market yield; stated interest rate; premium
38. The U.S. government will pay TC Anderson $2,500,000 each six months, equal to 2.5% of the $100 million face amount of the treasury bonds (5% annual coupon rate, paid in two installments each year), and will repay the $100 million at the end of five years. Assume that at the time TC Anderson purchases the bonds, the market prices these bonds to yield TC Anderson 6% annually (3% each six months). The bonds are classified as held to maturity. TC Anderson will pay an amount equal to _____ for the bonds.
A. $95,734,898
B. 100,000,000
C. 105,567,432
D. 110,987,012
E. 116,802,503
39. The U.S. government will pay Bertram $2,500,000 each six months, equal to 2.5% of the $100 million face amount of the treasury bonds (5% annual coupon rate, paid in two installments each year), and will repay the $100 million at the end of five years. At the time Bertram purchases the bonds, the market prices these bonds to yield Bertram 6% annually (3% each six months). The bonds are classified as held to maturity. Bertram will record the following entry.
A. Marketable Securities…………………………95,734,898
Cash………………………………………………………………..95,734,898
B. Marketable Securities……………………….100,000,000
Cash………………………………………………………………100,000,000
C. Cash……………………………………………….. 95,734,898
Marketable Securities………………………………………..95,734,898
D. Cash……………………………………………. 100,000,000
Marketable Securities………………………………………..95,734,898
E. Cash……………………………………………….105,907,059
Marketable Securities ……………………………………..105,907,059
40. The U.S. government will pay Alderton $2,500,000 each six months, equal to 2.5% of the $100 million face amount of the treasury bonds (5% annual coupon rate, paid in two installments each year), and will repay the $100 million at the end of five years. At the time Alderton purchases the bonds, the market prices these bonds to yield Alderton 6% annually (3% each six months). The bonds are classified as held to maturity. Alderton will pay an amount equal to _____ for the bonds.
A. present value of an annuity of $2.5 million for 10 periods plus the present value of $100 million paid at the end of 10 periods, both cash flows discounted at 3% per period
B. present value of an annuity of $5.0 million for 5 periods plus the present value of $100 million paid at the end of 5 periods, both cash flows discounted at 6% per period.
C. present value of an annuity of $2.5 million for 10 periods plus the present value of $100 million paid at the end of 10 periods, both cash flows discounted at 2.5% per period.
D. present value of an annuity of $5.0 million for 5 periods plus the present value of $100 million paid at the end of 5 periods, both cash flows discounted at 5% per period.
E. the future value of cash flows totaling $125 million
