For the following investments identify whether they are: (1) Trading Securities, (2) Available-for-saleSecurities, or (3) Held-to-Maturity Securities.A. Purchase bonds maturing in 20 years. The company intends to use the cash flow generated by theinterest payments on the bond to provide employee bonuses.B. A bond was purchased with the intent to sell as quickly as possible.C. An investment grade bond that matures in 8 years was purchased. The company will probably hold thebond until it matures and use the proceeds to retire maturing debt.D. Five-year bonds of a troubled company were purchased this year for substantially below par value. Thebonds mature in 2 months.

Solution: A. Purchase bond maturing in 20 years. The company intends to use the cash flow generated…

Answered: For the following investments identify…

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter11: Notes, Bonds, And Leases

Section: Chapter Questions

Problem 20E

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Similar questions

Krystian Inc. issued 10-year bonds with a face value of $100,000 and a stated rate of 4% when the market rate was 6%. Interest was paid semi-annually. Calculate and explain the timing of the cash flows the purchaser of the bonds (the investor) will receive throughout the bond term. Would an investor be willing to pay more or less than face value for this bond?
A company issued bonds with a $100,000 face value, a 5-year term, a stated rate of 6%, and a market rate of 7%. Interest is paid annually. What is the amount of interest the bondholders will receive at the end of the year?
The University Club recently issued 1,500,000 of 10-year, 9% bonds at an effective interest rate of 10%. Bond interest is payable annually. You have been asked to calculate the issuance price of the bonds and prepare amortization schedules for any discount or premium. The worksheet BONDS has been provided to assist you. Note that the worksheet contains a scratch pad at the bottom that has been preprogrammed to automatically compute and display the relevant cash flows needed for bond pricing.
Your investment department has researched possible investments in corporate debt securities. Among the available investments are the following $100 million bond issues, each dated January 1, 2018. Prices were determinedby underwriters at different times during the last few weeks.Company Bond Price Stated Rate1. BB Corp. $109 million 11%2. DD Corp. $100 million 10%3. GG Corp. $ 91 million 9%Each of the bond issues matures on December 31, 2037, and pays interest semiannually on June 30 and December31. For bonds of similar risk and maturity, the market yield at January 1, 2018, is 10%.Required:Other things being equal, which of the bond issues offers the most attractive investment opportunity if it can bepurchased at the prices stated? The least attractive? Why?
FF&T Corporation is a confectionery wholesaler that frequently buys and sells securities to meet various investment objectives. The following selected transactions relate to FF&T’s investment activities during the last twomonths of 2018. At November 1, FF&T held $48 million of 20-year, 10% bonds of Convenience, Inc., purchasedMay 1, 2018, at face value. Management has the positive intent and ability to hold the bonds until maturity.FF&T’s fiscal year ends on December 31.Nov. 1 Received semiannual interest of $2.4 million from the Convenience, Inc., bonds.Dec. 1 Purchased 12% bonds of Facsimile Enterprises at their $30 million face value, to be held untilthey mature in 2024. Semiannual interest is payable May 31 and November 30.31 Purchased U.S. Treasury bills to be held until they mature in two months for $8.9 million.31 Recorded any necessary adjusting entry(s) relating to the investments.The fair values of the investments at December 31 were:Convenience bonds $44.7…
Prepare Natura Co.’s journal entries to record the following transactions involving its short-term investments in held-to-maturity debt securities, all of which occurred during the current year. a. On June 15, paid $168,000 cash to purchase Remed’s 90-day short-term debt securities ($168,000 principal), dated June 15, that pay 10% interest.b. On September 16, received a check from Remed in payment of the principal and 90 days' interest on the debt securities purchased in transaction a. (Use 360 days in a year. Do not round your intermediate calculations.)
Prepare Natura Company’s journal entries to record the following transactions involving its short-term investments in held-to-maturity debt securities, all of which occurred during the current year. On June 15, paid $210,000 cash to purchase Remed’s 90-day short-term debt securities ($210,000 principal), dated June 15, that pay 7% interest. On September 16, received a check from Remed in payment of the principal and 90 days' interest on the debt securities purchased in transaction a. Note: Use 360 days in a year. Do not round your intermediate calculations. On June 15, paid $210,000 cash to purchase Remed's 90-day short-term debt securities ($210,000 principal), dated June 15, that pay 7% interest. 2 On September 16, received a check from Remed in payment of the principal and 90 days’ interest on the debt securities purchased in transaction a.
For the following investments, identify whether they are: 1. Trading debt securities. 2. Available-for-sale debt securities. 3. Held-to-maturity debt securities. 4. None of the above. Each case is independent of the other. a. A bond that will mature in 4 years was bought 1 month ago when the price dropped. As soon as the value increases, which is expected next month, it will be sold. b. 10% of the outstanding stock of Farm-Co was purchased. The company is planning on eventually getting a total of 30% of its outstanding stock. c. Bonds were purchased in December of this year. The bonds are expected to be sold in January of next year. d. Bonds that will mature in 5 years are purchased. The company would like to hold them until they mature, but money has been tight recently and they may need to be sold. e. Preferred stock was purchased for its constant dividend. The company is planning to hold the preferred stock for a long time. f. A bond that matures in 10 years was purchased.…
Prepare Natura Company’s journal entries to record the following transactions involving its short-term investments in held-to-maturity debt securities, all of which occurred during the current year. On June 15, paid $254,000 cash to purchase Remed’s 90-day short-term debt securities ($254,000 principal), dated June 15, that pay 9% interest. On September 16, received a check from Remed in payment of the principal and 90 days' interest on the debt securities purchased in transaction a. Note: Use 360 days in a year. Do not round your intermediate calculations.
At the beginning of the current year, Candice Company acquired bonds with face amount of P3,000,000 at a cost of P2,820,750. The bonds are held for trading. Bonds pay interest of 12% semiannually on January 1 and July 1 and mature on January 1, 2023. The bonds have an effective yield of 14% and are quoted at 105 at year end. What is the carrying amount of the investment at the end of the current year?
. Which of the following securities would be classified as marketable securities inthe current asset section of the balance sheet?a) Commercial paper, U.S. Treasury bills, land held for investment.b) Commercial paper, U.S. Treasury bills, negotiable certificates of deposit.c) Commercial paper, land held for investment, bonds with maturities in 10 years.d) U.S. Treasury bills, long-term stock investment, bonds with maturities in 10years.*
Company maintained a large investment in debt securities valued at approximately $ 42 billion as of the begining of the year. During the year, the debt securities produced investment income (interest income) totaling $2.5 billion. At the year-end, the portfolio of debt securities had appreciated to $45.5 billion. Please prepare the journal entries to record the year-end adjusting entries assuming that the debt portfolio is Clasified as trading securities and Clasified as available-for-sale securities and prepare the journal entry to record the interest earned (assume all interest is collected)

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