E 2 If a company chooses the fair value option, a decrease in the fair value of its bonds because of the credit rating dropping is recorded bycreditingO Gain on Restructuring of Debt.O Unrealized Holding Gain or Loss-EquityO Unrealized Holding Gain or Loss-Income.O Bonds Payable.

The fair value option is the alternative for a business to record its financial instruments at their…

Answered: If a company chooses the fair value…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter13: Investments And Long-term Receivables

Section: Chapter Questions

Problem 5MC

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Under which of the following situation, would a firm most likely to call its outstanding callable bonds? Group of answer choices a)The firm has financial distress. b)The company’s bonds are downgraded. c)The market interest rate increases d)The market interest rate declines
Which of the following events would make it more likely that a company would choose to call its outstanding callable bonds? a. Market interest rates rise sharply. b. Market interest rates decline sharply. c. The company's nancial situation deteriorates signicantly. d. Ination increases signicantly. e. The company's bonds are downgraded. Please explain.
Which of the following statements is most correct? Why?* choices: a. The expected return on corporate bonds will generally exceed the yield to maturity. b. Firms that are in financial distress are forced to declare bankruptcy. c. All else equal, senior debt will generally have a lower yield to maturity than subordinated debt. d. Statements a and c are correct. e. None of the statements above is correct.
FASB allows debt to be shown at its fair market value. Consequently, if a company in financial difficulty uses the fair value option, it would report a gain because investors no longer want to purchase its debt. Do you think that this is appropriate?
Which of the following events would make it more likely that a company would choose to call it’s outstanding callable bonds? An increase in market interest rates. An increase in the call premium. All the other statements are correct. The company’s bonds are downgraded. A reduction in market interest rates.
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.
Why would a company wish to reduce its bond indebtedness before its bonds reach maturity? Indicate how this can be done and the correct accounting treatment for such a t
The issuance costs of new debt securities can be ignored since those costs will not be reflected in the yield to maturity of the debt in the future. Select one: a. False b. True
Which of the following statements about Floating-Rate Debt is NOT true? A) Floating-rate debt has a stated interest rate that fluctuates in tandem with some interest rate benchmark (for instance, LIBOR). B)Floating-rate bonds allow companies to keep reported book value and fair value at the same level that protects investors from losses. C)The issuing company benefits from floating-rate debt when market interest rates increase. D)Floating-rate debt is issued at par.
The realized gain (loss) on sale of debt investments with an objective of collecting contractual cash flows and to sell when circumstances warrants is the difference of the net selling price and the fair value of the bonds. Group of answer choices False True
Identify the following as either an advantage (A) or a disadvantage (D) of bond financing for a company. A company earns a lower return with borrowed funds than it pays in interest.
True/False Companies do not report changes in the fair value of available-for-sale debt securities as income until the security is sold.

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If a company chooses the fair value option, a decrease in the fair value of its bonds because of the credit rating dropping is recorded by crediting O Gain on Restructuring of Debt. O Unrealized Holding Gain or Loss-Equity O Unrealized Holding Gain or Loss-Income. O Bonds Payable.