. ABC Corp acquired bonds at a discount and plans to sell these bonds in the near term to take advantage of the fluctuations in fair values for short term profit ABC should account for this investment as: Cost Amortized Cost FVPL FVOCI
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2.
ABC Corp acquired bonds at a discount and plans to sell these bonds in the near term to take advantage of the fluctuations in fair values for short term profit ABC should account for this investment as:
Cost
Amortized Cost
FVPL
FVOCI
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Solved in 2 steps
- The fair value option allows a company to report most financial instruments at fair value at each reporting date. record the unrealized gains and losses related to changes in the fair value of available-for-sale debt securities in net income. account for held-to-maturity securities at amortized cost. all of these choices are true of the fair value option.BM Co did not amortize the discount on its short-term bond investment. What effect would this have of the carrying value of the investment and on net income, respectively? A. overstated, overstated B. understated, overstated C. understated, understated D. no effect, no effectWhich of the following statements is correct in regard to trading bond investment? a. Trading bond investments are held with the intention of selling them in a short period of time b. Unralized gains and losses are reported as part of income c. both are correct d. both are incorrect
- Which of the following statements does correctly explain the effect of additional debt on the weighted average cost of capital (WACC)? Debtholders’ prior and “fixed” claim decreases the risk of stockholders’ “residual” claim, so the cost of stock (rs) goes down. Additional debt decreases the pre-tax of cost of debt (rd) because the decreased risk of bankruptcy. The net effect of additional debt on WACC is to increase WACC. The net effect of additional debt on WACC is uncertain.Which of the following will increase a firm's aftertax cost of debt financing? Select one: a. increase in a bond's current market price b. decrease in the corporate tax rate c. increase in the dividend yield d. decrease in the market rate of interest1. Anton wants to have a portion of ownership of a certain company. Which of the following should he invest? A. Annuity B. Bonds C. Shares D. Stocks 2. What writtwn contract is exhibited by a debtor that is legally binding which stipulates the amount borrowed at a specified tine in the future? A. Stocks B. Annuity C. Amortization D. Bonds 3. Which of the following covers when the frequency of the regular payment is different from the frequency of interest conversion? A. Bonds B. Ammortilation C. General annuity D. Simple annuity 4. What term is refers to the type of arrangement where composition is important but not order? A. Courting B. Permutation C. Multiplication rulw D. Combination 5. If p q is a tautology, then what can you inter about p and q? A. P and Q are either true or false but not both B. P and Q are always false C. P and Q are always true D. P and Q are either both true or false both false
- When the market value of a companys available-for-sale securities is lower than its cost, the difference should be: a. shown as a liability. b. shown as a valuation allowance added to the historical cost of the investments. c. shown as a valuation allowance subtracted from the historical cost of the investments. d. No entry is made, the securities are shown at historical cost.Available-for-Sale Securities The following are four unrelated situations involving investments in available-for-sale securities: Situation I A portfolio of available-for-sale debt securities with an aggregate fair value in excess of amortized cost includes one particular security whose fair value has declined to less than one-half of its amortized cost. The decline in value is considered to be other than temporary. Situation II The portfolio of available-for-sale debt securities includes securities that have an amortized cost in excess of fair value of 500. The remainder of the portfolio has a net fair value in excess of amortized cost of 1,000. Situation III An available-for-sale debt security, whose fair value is currently less than its amortized cost, is reclassified as a trading security. Situation IV A companys portfolio of available-for-sale securities consists of the bonds of one company. At the end of the prior year, the fair value of the security was 95% of amortized cost, and the effect was properly reflected in an allowance account. However, at the end of the current year, the fair value of the debt security had appreciated to 102% of the amortized cost. Required: Explain the effect on classification, earning value, and earnings for each of the preceding situations.Discuss whether the director’s view (Miss Kay) that issuing traded bonds will decrease the weighted average cost of capital ATC Bhd and thereby increase the value of the company. Discussion should consider from the viewpoint of:i. Traditionalii. Modigliani & Milleriii. Market imperfectionsiv. Pecking order theory
- Croger Manufacturing Inc. makes an investment in securities that they intend to hold for a period of time that is unspecified. How will this investment be reported? Multiple Choice Fair value. Present value. Historical cost. Lower of cost or market.Company A has a market capitalization of $2410539999 and 22833777 shares outstanding. It plans to distribute $35977773 through an open market repurchase. Assuming perfect capital markets: What will the price per share of the firm be right after the repurchase?How would each of the following scenarios affect a firm's cost of debt, r d (l - t), t=tax rate; its cost of equity, rs; and its WACC? Indicate with an increase (I), a decreease (D), or no change (N) whether the factor would raise, lower, or have an indeterminate effect on the item in question. Assume for each answer that other things are held constant, even though in some instances this would probably not be true. rd (1-t) rs WACC 4) The dividend payout ratio is increased. 5) The firm expands into a risky new area. 6) Investors become more risk-averse. 7) The firm is an electric utility with a large investment innuclear plants. Several states are considering a ban on nuclear power generation.
