Question 1 An investor purchased at par value $75,000 of Cort\'s 8% bonds, that

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Question 1

An investor purchased at par value $75,000 of Cort's 8% bonds, that mature in three-years. The bonds pay interest semiannually on June 1 and December 1. The investor plans to hold the bonds until they mature. When the bonds mature, the investor should prepare the following journal entry:

debit Long-Term Investments-HTM, $75,000; credit Cash, $75,000.

debit Cash, $6,000; credit, Unrealized Gain-Equity, $6,000.

debit Cash, $75,000; credit Long-Term Investments—HTM, $75,000.

debit Unrealized Gain-Equity, $6,000; credit Cash, $6,000.

debit Cash, $75,000; credit Long-Term Investments—Trading, $75,000.

5 points   

Question 2

A bond sells at a discount when the:

Contract rate is above the market rate.

Contract rate is equal to the market rate.

Contract rate is below the market rate.

Bond has a short-term life.

Bond pays interest only once a year.

5 points   

Question 3

When the cost of a short-term held-to-maturity debt security is different from the maturity value, the difference is amortized over the remaining life of the security.

True

False

5 points   

Question 4

A company issued 5-year, 7% bonds with a par value of $100,000. The market rate when the bonds were issued was 6.5%. The company received $102,105 cash for the bonds. Using the effective interest method, the amount of recorded interest expense for the first semiannual interest period is:

$3,500

$7,000.

$3,318.41

$1,750

5 points   

Question 5

Consolidated statements are prepared as if a company is organized as one entity, with the amounts allocated for subsidiaries reported in the investment accounts.

True

False

5 points   

Question 6

Cash equivalents are investments that are readily converted to known amounts of cash and mature within three months.

True

False

5 points   

Question 7

Two common ways of retiring bonds before maturity are to (1) exercise a call option or (2) purchase them on the open market.

True

False

5 points   

Question 8

The carrying value of a long-term note payable:

Is computed as the future value of all remaining future payments, using the market rate of interest.

Is the face value of the long-term note less the total of all future interest payments.

Is computed as the present value of all remaining future payments, discounted using the market rate of interest at the time of issuance.

Is computed as the present value of all remaining interest payments, discounted using the note's rate of interest.

Decreases each time period the discount on the note is amortized.

5 points   

Question 9

If the exchange rate for Canadian and U.S. dollars is 0.7382 to 1, this implies that 3 Canadian dollars will buy ____ worth of U.S. dollars.

$0.2759

$1.48

$1.82777

$2.21

5 points   

Question 10

The debt-to-equity ratio:

Is calculated by dividing book value of secured liabilities by book value of pledged assets.

Is a means of assessing the risk of a company's financing structure.

Is not relevant to secured creditors.

Can always be calculated from information provided in a company's income statement.

Must be calculated from the market values of assets and liabilities.

debit Long-Term Investments-HTM, $75,000; credit Cash, $75,000.

debit Cash, $6,000; credit, Unrealized Gain-Equity, $6,000.

debit Cash, $75,000; credit Long-Term Investments—HTM, $75,000.

debit Unrealized Gain-Equity, $6,000; credit Cash, $6,000.

debit Cash, $75,000; credit Long-Term Investments—Trading, $75,000.

Explanation / Answer

Answer:1 debit Cash, $75,000; credit Long-Term Investments—Trading, $75,000.

Answer:2 Contract rate is below the market rate.

Answer:3 True

Answer:4 $3,500

Answer:5 False

Answer:6 True

Answer:7 True

Answer:8 Is computed as the present value of all remaining future payments, discounted using the market rate of interest at the time of issuance.

Answer:9 $2.21

$3 x 0.7382 = $2.21

Answer:10 Is a means of assessing the risk of a company's financing structure.

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