Question :
41. The U.S. government will pay Abbott Company $2,500,000 each six : 1230365
41. The U.S. government will pay Abbott Company $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 Abbott Company purchases the bonds, the market prices these bonds to yield Abbott Company 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
42. The U.S. government will pay Avery Company $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 Avery Company purchases the bonds, the market prices these bonds to yield Avery Company 6% annually (3% each six months). The bonds are classified as held to maturity and Avery Company would classify this investment as a(n) _____on its _____ because it intends to hold the securities for _____.
A. current asset; balance sheet; less than one year
B. current asset; income statement; less than one year
C. noncurrent asset; balance sheet; more than one year
D. noncurrent asset; income statement; more than one year
E. current asset; statement of cash flows; less than one year
43. The U.S. government will pay Avery Company $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 Avery Company purchases the bonds, the market prices these bonds to yield Avery Company 6% annually (3% each six months). The bonds are classified as held to maturity and Avery Company would classify this investment as a(n) _____on its _____ because it intends to hold the securities for _____
A. current asset; balance sheet; less than one year
B. current asset; income statement; less than one year
C. noncurrent asset; balance sheet; more than one year
D. noncurrent asset; income statement; more than one year
E. current asset; statement of cash flows; less than one year
44. U.S. GAAP and IFRS require firms to account for debt securities designated as held to maturity at _____ except that they are also subject to _____. That is, firms do not recognize increases in fair value (unrealized gains) but might recognize decreases in fair value(unrealized losses).
A. amortized cost; impairment
B. present value; depreciation
C. net realizable value; impairment
D. amortized cost; destruction
E. net realizable value; depreciation
45. U.S. GAAP and IFRS require firms to account for debt securities designated as held to maturity by not recognizing _____ but might recognize _____.
A. increases in fair value (unrealized gains); decreases in fair value (unrealized losses)
B. decreases in fair value (unrealized losses); increases in fair value (unrealized gains)
C. increases in future value (unrealized gains); decreases in future value (unrealized losses)
D. decreases in future value (unrealized losses); increases in future value (unrealized gains)
E. increases in future value (realized gains); decreases in future value (realized losses)
46. U.S. GAAP and IFRS require firms to account for debt securities held-to-maturity that are deemed to be impaired. The investor recognizes (debits) _____ and reduces (credits) _____
A. an impairment loss (included in other comprehensive income); the balance sheet carrying value of the investment
B. the balance sheet carrying value of the investment; an impairment loss (included in other comprehensive income)
C. the balance sheet carrying value of the investment; an impairment loss (included in net income)
D. an impairment loss (included in net income); the balance sheet carrying value of the investment
E. reserve for impairment loss (included in other comprehensive income); the balance sheet reserve for net realizable value of investments
47. The argument for measuring held-to-maturity debt securities at amortized cost and ignoring most changes in fair value during the contractual term of the debt is/are
A. changes in fair value are not relevant if the firm has the intention and ability to hold the securities to maturity.
B. firms would recognize impairment losses because of conservatism.
C. firms would recognize impairment losses because of impairments due to changes in default risk that reflect changes in the amount the investor is likely to receive.
D. all of the above
E. none of the above
48. The counter-argument for (1) not measuring held-to-maturity debt securities at amortized cost and (2) recognizing most changes in fair value during the contractual term of the debt include any change in the _____ could change the investor’s willingness or ability to hold the securities until maturity.
A. economic circumstances
B. interest rates
C. investor’s need for cash
D. credit risk of the borrower
E. all of the above
49. The term _____ implies active and frequent buying and selling with the objective of generating profits from short-term changes in market prices.
A. gambling
B. mad money
C. conjecture
D. trading
E. ka-ching
50. Firms include trading securities in _____ in the _____ section of the _____
A. held-to-maturity securities; current assets; balance sheet
B. marketable securities; noncurrent assets; statement of cash flows
C. marketable securities; current assets; balance sheet
D. held-to-maturity securities; noncurrent assets; balance sheet
E. held-to-maturity securities; current assets; statement of cash flows
