*61. Gains or losses on cash flow hedges are  a. ignored completely.

b.recorded in equity, as part of other comprehensive income.

c.reported directly in net income.

d.reported directly in retained earnings.

*62. An option to convert a convertible bond into shares of common stock is a(n)                a. embedded derivative.

b.host security.

c.hybrid security.

d.fair value hedge.

*63. All of the following are requirements for disclosures related to financial instruments except                              a. disclosing the fair value and related carrying value of the instruments.

b.distinguishing between financial instruments held or issued for purposes other than trading.

c.combining or netting the fair value of separate financial instruments.

d.displaying as a separate classification of other comprehensive income the net gain/loss on derivative instruments designated in cash flow hedges.

 

64. On August 1, 2007, Witten Co. acquired 200, $1,000, 9% bonds at 97 plus accrued interest. The bonds were dated May 1, 2007, and mature on April 30, 2013, with interest paid each October 31 and April 30. The bonds will be added to Witten’s available-for-sale portfolio. The preferred entry to record the purchase of the bonds on August 1, 2007 is

a. Available-for-Sale Securities………………………………………… 198,500

Cash………………………………………………………………. 198,500  b. Available-for-Sale Securities…………………………………………               194,000                              Interest Receivable……………………………………………………..               4,500

Cash………………………………………………………………. 198,500  c. Available-for-Sale Securities…………………………………………               194,000                              Interest Revenue ………………………………………………………..               4,500

Cash………………………………………………………………. 198,500   d. Available-for-Sale Securities…………………………………………               200,000                              Interest Revenue ………………………………………………………..               4,500

Discount on Debt Securities……………………………….  6,000    Cash ………………………………………………………………  198,500

65.Barr Company purchased bonds with a face amount of $400,000 between interest payment dates. Barr purchased the bonds at 102, paid brokerage costs of $6,000, and paid accrued interest for three months of $10,000. The amount to record as the cost of this long-term investment in bonds is a. $424,000.

b.$414,000.

c.$408,000.

d.$400,000.

Use the following information for questions 66 and 67.

Oliver Company purchased $400,000 of 10% bonds of McGee Co. on January 1, 2008, paying $376,100. The bonds mature January 1, 2018; interest is payable each July 1 and January 1. The discount of $23,900 provides an effective yield of 11%. Oliver Company uses the effectiveinterest method and plans to hold these bonds to maturity.

66.On July 1, 2008, Oliver Company should increase its Held-to-Maturity Debt Securities account for the McGee Co. bonds by a. $2,392.

b.$1,371.

c.$1,196.

d.$686.

67.For the year ended December 31, 2008, Oliver Company should report interest revenue from the McGee Co. bonds of: a. $42,392.

b.$41,409.

c.$41,368.

d.$40,000.

Use the following information for questions 68 and 69.

Marten Co. purchased $500,000 of 8%, 5-year bonds from Duggan, Inc. on January 1, 2008, with interest payable on July 1 and January 1. The bonds sold for $520,790 at an effective interest rate of 7%. Using the effective-interest method, Marten Co. decreased the Available-for-Sale Debt Securities account for the Duggan, Inc. bonds on July 1, 2008 and December 31, 2008 by the amortized premiums of $1,770 and $1,830, respectively.

68.At December 31, 2008, the fair value of the Duggan, Inc. bonds was $530,000.  What should Marten Co. report as other comprehensive income and as a separate component of stockholders' equity? a. $12,810.

b.$9,210.

c.$3,600.

d.No entry should be made.

69.At April 1, 2009, Marten Co. sold the Duggan bonds for $515,000.  After accruing for interest, the carrying value of the Duggan bonds on April 1, 2009 was $516,875.  Assuming Marten Co. has a portfolio of Available-for-Sale Debt Securities, what should Marten Co. report as a gain or loss on the bonds? a. ($14,685).

b.($10,935).

c.($1,875).

d.$ 0.

70.On August 1, 2007, Bettis Company acquired $200,000 face value 10% bonds of Hanson Corporation at 104 plus accrued interest. The bonds were dated May 1, 2007, and mature on April 30, 2012, with interest payable each October 31 and April 30. The bonds will be held to maturity. What entry should Bettis make to record the purchase of the bonds on August 1, 2007?

a. Held-to-Maturity Securities…………………………………………… 208,000  Interest Revenue…………………………………………………………               5,000

Cash………………………………………………………………. 213,000 

b. Held-to-Maturity Securities…………………………………………… 213,000

Cash………………………………………………………………. 213,000 

c. Held-to-Maturity Securities…………………………………………… 213,000

Interest Revenue……………………………………………… 5,000  Cash……………………………………………………………….                             208,000               

d. Held-to-Maturity Securities…………………………………………… 200,000  Premium on Bonds………………………………………………………               13,000

Cash………………………………………………………………. 213,000

 

 

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