Answered: amount of the financial asset shall be:…

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter11: Long-term Assets

Section: Chapter Questions

Problem 4MC: Which of the following statements about capitalizing costs is correct? A. Capitalizing costs refers...

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1. On derecognition of a financial asset , the difference between the consideration received and the carrying amount of the financial asset shall be:

2 points

a. Recognized in other comprehensive income for financial asset at amortized cost and profit or loss for financial asset at fair value.

b. Recognized in profit or loss only for financial asset measured at amortized cost.

c. Recognized in profit or loss only for financial asset measured at fair value.

d. Recognized in profit or loss for both financial asset at fair value and financial asset at amortized cost.

2. The entity purchased government bonds. The entity’s business model in managing financial assets is to collect contractual cash flows that are solely payments of principal and interest on the principal amount outstanding. Which of the following is the most appropriate classification for the investment in bonds?

2 points

a. At fair value through profit or loss.

b. At amortized cost.

c. At fair value through other comprehensive income.

d. Held for trading.

3. If the financial asset is held for trading or if the financial asset is measured at fair value through profit or loss, transaction costs directly attributable to the acquisition shall be:

2 points

a. Included as component of other comprehensive income

b.Deferred and amortized over a reasonable period

c. Capitalized as cost of the financial asset

d.Expensed immediately when incurred

4. If a 5-year bond matures on October 1, 2025 and interest is payable semi-annually, the interest dates are:

2 points

a. Not determinable.

b. April 1 and October 1

c. May 1 and November 1

d. January 1 and July 1

5. When the interest payment dates of a bond are May 1 and November 1, and a bond is purchased on June 1, the amount of cash paid by the investor would be:

2 points

a. Decreased by accrued interest from May 1 to June 1.

b. Increased by accrued interest from June 1 to November 1.

c. Decreased by accrued interest from June 1 to November 1.

d. Increased by accrued interest from May 1 to June 1.

6. Bond usually sell at a premium:

2 points

a. None of the cases.

b. When the stated rate of interest on the bonds is greater than the market rate of return.

c. When the price of the bonds is greater than their maturity value.

d. When the market rate of interest is greater than the stated rate of interest on the bonds.

7. The effective interest method of amortizing discount provides:

2 points

a. Increasing amortization and decreasing interest income.

b. Increasing amortization and increasing interest income.

c. Decreasing amortization and increasing interest income

d. Decreasing amortization and decreasing interest income.

8. Amortized cost is the initial recognition amount of the investment minus:

2 points

a. Repayments plus or minus cumulative amortization and net of any reduction for uncollectibility.

b. Repayments and net of any reduction for uncollectibility.

c. Repayments plus or minus cumulative amortization.

d. Cumulative amortization and net of any reduction for uncollectibility.

9. The irrevocable election to present subsequent changes in fair value in other comprehensive income is applicable only to:

2 points

a. Financial asset measured at amortized cost.

b. Investment in equity instrument that is not held for trading.

c. Financial asset measured at fair value.

d. Investment in equity instrument that is held for trading.

10. Debt investments that meet the business model and contractual cash flow tests are reported at:

2 points

a. Amortized cost

b. Fair value

c. The lower of amortized cost or fair value

d. Net realizable value

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