Question 1

Explain the meaning of the "effective interest method."

Accepted Answer

The answer of Explain the meaning of the "effective interest...

Question 2

Star Corp.purchases a $100,000 face value bond which matures in two years.The coupon rate is 6% and the market rate is 5%.How much is the premium or discount (rounded)?

Accepted Answer

A)101,859 - 100,000 = 1,859 premium
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Question 3

A bond has a maturity value of $500,000 payable in 3 years.These bonds have a 5% coupon rate payable annually,and the market yield was 2% when the bonds were purchased.How much will be recorded for the bond purchase (rounded)?

Accepted Answer

B)
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Question 4

Star Corp.purchases a $100,000 face value bond which matures in two years.The coupon rate is 6% and the market rate is 5%.At what amount will the bond be recorded (rounded)?

Accepted Answer

D)
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Question 5

A bond has a maturity value of $750,000 payable in 3 years.These bonds have a 5% coupon rate payable annually,and the market yield was 2% when the bonds were purchased.
Required:
a.Is this a discount bond or a premium bond?
b.Compute the amount required to purchase this bond at the beginning of the 3-year period

Accepted Answer

The answer of A bond has a maturity value of...

Question 6

Super Control Group has the following investments:
  
a)Explain how these investments will be classified and accounted for.
b)How much income will be recorded in 2016 by Super Group for its investment in VWX?
c)How much income will be recorded in 2016 by Super Group for its investment in ABC?

Accepted Answer

The answer of Super Control Group has the following investments:
...

Question 7

A bond has a maturity value of $50,000 payable in 4 years.These bonds have a 7% coupon rate payable semi-annually,and the market yield was 4% when the bonds were purchased.
Required:
a.Is this a discount bond or a premium bond?
b.Calculate the amount required to purchase this bond at the beginning of the 4-year period.

Accepted Answer

The answer of A bond has a maturity value of...

Question 8

On January 1,2016,the Polka Dot Company acquired a $20 million face value bond that has an 11% coupon rate (paying interest annually on December 31).The bond matures on December 31,2021.On January 1,2016 the market yield for bonds of equivalent risk and maturity was 9%.
Required:
a.How much did Polka Dot pay for this bond on January 1,2016?
b.On December 31,2016,the market yield for bonds of equivalent risk and maturity is 10%.What would be the market value of this bond on December 31,2016 immediately after the coupon payment?
c.On December 31,2017,the market yield for bonds of equivalent risk and maturity is 11%.What would be the market value of this bond on December 31,2017 immediately after the coupon payment?
d.Assume each of three scenarios: the bond is classified as (i)amortized cost, (ii)at fair value through other comprehensive income,or (iii)at fair value through profit or loss:
• How much would the balance sheet value of this bond be on December 31,2016 and December 31,2017?
• How much income would be reported in 2016 and 2017 for this bond?
• How much would other comprehensive income (OCI)and accumulated OCI be for fiscal years 2016 and 2017?

Accepted Answer

The answer of On January 1,2016,the Polka Dot Company acquired...

Question 9

On January 1,2016,CC Company acquired 60,000 shares,representing 20% of the outstanding shares of VV Limited,at $25 per share.On July 31,2016,VV declared and paid a dividend of $3 per share.VV's net income for 2016 was $1,000,000.On December 31,2016,the shares of VV were trading on the Toronto Stock Exchange at $31 per share.
Required:
CC is not sure how to report its investment in VV shares.Using the format provided,indicate the amounts that would appear on the balance sheet and the statement of comprehensive income for 2016 if the investment is considered to be (a)at fair value through OCI, (b)at fair value through profit or loss,or (c)an associate.

Accepted Answer

The answer of On January 1,2016,CC Company acquired 60,000 shares,representing...

Question 10

On January 1,2015,Cadance Company purchased bonds with a maturity value of $100,000 for $80,747.These bonds have a 12% coupon rate payable semi-annually on June 30 and December 31.The bond matures on December 31,2019.On January 1,2015,the market yield for bonds of equivalent risk and maturity was 18%.
Required:
Prepare an amortization schedule that shows the amortized cost of this bond at the end of each of five years and the amount of interest income for each of those five years.

Accepted Answer

The answer of On January 1,2015,Cadance Company purchased bonds with...

Question 11

On January 1,2017,The Freedom Company purchased a $5 million face value bond that pays interest at 7% when the market yield for bonds of equivalent risk and maturity was 5%.Interest is payable annually on December 31.The bond matures on December 31,2022.
Required:
a.How much did The Freedom Company pay for this bond on January 1,2017?
b.On December 31,2017,the market yield for bonds of equivalent risk and maturity is 6%.What would be the market value of this bond on December 31,immediately after the coupon payment on that date?
c.On December 31,2018,the market yield for bonds of equivalent risk and maturity is 7%.What would be the market value of this bond on December 31,immediately after the coupon payment on that date?
d.For each of three scenarios: (i)amortized cost, (ii)FVOCI,and (iii)FVPL:
i What would be the balance sheet value of this bond be on December 31,2017?
ii How much income would be reported in profit or loss in 2017 for this bond?
iii How much other comprehensive income would be reported in 2017 for this bond?
iv How much comprehensive income would be reported in 2017 for this bond?

Accepted Answer

The answer of On January 1,2017,The Freedom Company purchased a...

Question 12

Simply purchases a $100,000 face value bond which matures in two years.The coupon rate is 6% and the market rate is 5%.How much premium or discount will be amortized in the first year,if any?

Accepted Answer

B)101,859 × 5% = 5,092.95 6,000 - 5,092.95 = 907.05 (premium amortized)
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Question 13

A bond has a maturity value of $300,000 payable in 4 years.These bonds have a 7% coupon rate payable semi-annually,and the market yield was 4% when the bonds were purchased.How much premium or discount will be recorded upon purchase (rounded)?

Accepted Answer

D)
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Question 14

Star Corp.purchases a $100,000 face value bond which matures in two years.The coupon rate is 6% and the market rate is 7%.At what amount will the bond be recorded (rounded)?

Accepted Answer

B)
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Question 15

Bountiful Corporation has the following investment portfolio at December 31,2016:
  
Required:
a)Explain how each investment should be classified for financial reporting purposes and the accounting method that should be used.
b)Prepare all of the required journal entries using the recommendations you have provided in (a)above.Round all values to nearest dollar.
c)Fill in the following chart:

Accepted Answer

The answer of Bountiful Corporation has the following investment portfolio...

Question 16

Copi Corp.purchased a bond with a maturity value of $60,000 payable in five years.These bonds have a 7% coupon rate payable annually.Copi paid $65,195 for these bonds,giving a yield of 5%.
Required:
Prepare an amortization schedule that shows the amortized cost of this bond at the end of each of five years and the amount of interest income for each of those five years.

Accepted Answer

The answer of Copi Corp.purchased a bond with a maturity...

Question 17

Koala had the following transactions relating to its investments during 2017.Koala uses the effective interest method of amortization of premiums or discounts when applicable.
a.On July 1,2017,Koala acquired a $400,000,16%,8-year government bond with interest paid semi-annually on January 1 and July 1.Because the market rate of interest was 12% on that date,Koala paid $480,847 for the bond.The bonds were classified as at amortized cost by Koala and had a fair value of $440,000 plus accrued interest on December 31,2017.
b.On July 1,2017,Koala acquired 10,000 shares of Gorilla at a price of $41 per share.On December 31,2017,the ex-dividend date,dividends of $2.00 per share were declared with an expected date of payment of January 15,2018.On December 31,2017,the fair value of the Gorilla shares had increased to $42 per share.Management irrevocably elect to classify the investment at fair value through OCI.
c.On July 1,2017,Koala acquired 45,000 shares (20%)of the outstanding shares of Black Bear at a price of $15 per share,giving it significant influence over Black Bear.Black Bear had net income of $600,000 for the six months ended December 31,2017 and declared and paid total dividends of $10,000 to its shareholders on December 31,2017.On December 31,2017,Black Bear's shares had a fair value of $19 per share.
Required:
Provide all journal entries required relating to these investments on July 1,2017 and December 31,2017,including any journal entries required relating to the change in fair value for the year.

Accepted Answer

The answer of Koala had the following transactions relating to...

Quiz 7: Financial Assets

Explain the meaning of the "effective interest method."

Star Corp.purchases a $100,000 face value bond which matures in two years.The coupon rate is 6% and the market rate is 5%.How much is the premium or discount (rounded) ?

A bond has a maturity value of $500,000 payable in 3 years.These bonds have a 5% coupon rate payable annually,and the market yield was 2% when the bonds were purchased.How much will be recorded for the bond purchase (rounded) ?

Star Corp.purchases a $100,000 face value bond which matures in two years.The coupon rate is 6% and the market rate is 5%.At what amount will the bond be recorded (rounded) ?

Super Control Group has the following investments: a)Explain how these investments will be classified and accounted for. b)How much income will be recorded in 2016 by Super Group for its investment in VWX? c)How much income will be recorded in 2016 by Super Group for its investment in ABC?

Simply purchases a $100,000 face value bond which matures in two years.The coupon rate is 6% and the market rate is 5%.How much premium or discount will be amortized in the first year,if any?

A bond has a maturity value of $300,000 payable in 4 years.These bonds have a 7% coupon rate payable semi-annually,and the market yield was 4% when the bonds were purchased.How much premium or discount will be recorded upon purchase (rounded) ?

Star Corp.purchases a $100,000 face value bond which matures in two years.The coupon rate is 6% and the market rate is 7%.At what amount will the bond be recorded (rounded) ?