1) On January 1, 20x1, Honey Co

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1) On January 1, 20x1, Honey Co. intends to buy 3-year, zero-coupon bonds with face amount of ?3,000,000 and maturity value of ?3,993,000. The effective interest rate is 16%. The bonds will be measured at amortized cost. How much is estimated purchase price of the bonds on January 1, 20x1? * a)   2,299,341 b)   2,356,214 c)   2,558,146 d)   2,789,123 2. On January 1, 20x1, Santa Co. acquired 10%, ?1,000,000 bonds at 92. Commission paid to brokers amounted to ?9,100. The bonds are classified as investment measured at amortized cost. Principal is due on December 31, 20x3 but interest is due annually every December 31. The carrying amount of the investment on December 31, 20x1 is most approximately equal to * a)   949,883. b)   958,364. c)   973,368. d)   938,341. 3. The use of the effective-interest method in amortizing bond premiums and discounts results in * a)   a greater amount of interest income over the life of the bond issue than would result from use of the straight-line method. b)   a varying amount being recorded as interest income from period to period. c)   a variable rate of return on the book value of the investment. d)   a smaller amount of interest income over the life of the bond issue than would result from use of the straight-line method. 4. The true or actual rate of interest that a bondholder earns on the investment. * a)   nominal rate b)   coupon rate c)   effective interest rate d)   stated rate 5. If the acquisition cost of investment in bonds is less than the face amount, there is * a)   discount. b)   premium. c)   loss. d)   gain. 6. On April 30, 20x1, Heidelberg Co. acquired ?100,000 face amount, 10% bonds dated January 1, 20x1 at 102. The purchase price includes accrued interest. How much is the initial carrying amount of the investment? * a)   102,000 b)   99,500 c)   98,667 d)   105,333 7. On January 1, 20x1, MX Co. purchased 10%, ?3,000,000 bonds for ?3,105,726. The bonds are classified as financial assets measured at amortized cost. Principal on the bonds mature as follows: * Interest is due annually at each year-end. The effective interest rate on the bonds is 8%. How much is the current portion of the investment on December 31, 20x1?   December 31, 20x1            1,000,000 December 31, 20x2            1,000,000 December 31, 20x3            1,000,000 Total                                       3,000,000   a)   1,051,542 b)   1,035,665 c)   2,054,184 d)   1,018,519 8. It is a type of serial bond wherein the holder is given the right to extend the initial maturity to longer maturity date. * a)   extendible bond b)   retractable bond c)   redeemable bond d)   callable bond 9. On January 1, 20x1, Staircase Glass Co. purchased 10%, ?1,000,000 callable bonds for ?966,199. The bonds mature in 4 years' time. Interest is due annually every Dec. 31. The investment is classified as financial asset measured at amortized cost. The effective interest rate is 12%. If the carrying amount of the investment on December 31, 20x1 is ?982,143, what is the expected holding period for the investment? * a)   4 years b)   3 years c)   2 years d)   none of these 10. On January 1, 20x1, Solicit Co. acquired 12%, ?1,000,000 bonds for ?1,049,737. The principal is due on January 1, 20x4 but interest is due annually every December 31. The bonds are classified as investments measured at amortized cost. The yield rate on the bonds is 10%. On September 30, 20x2, all the bonds were sold at 110. Commission paid to the broker amounted to ?10,000. How much is the gain (loss) on the sale? * a)   (67,686) b)   77,686 c)   (77,686) d)   (22,314) 11. If the effective interest rate is higher than the nominal rate, there is * a)   discount. b)   premium. c)   loss. d)   gain. 12. On January 1, 20x1, Impressed Co. acquired 8%, ?1,000,000 face amount, 4-year 'term' bonds for ?936,603. The bonds are measured at amortized cost and have a yield rate of 10%. How much is the carrying amount of the investment on December 31, 20x2? * a)   1,000,000 b)   950,263 c)   965,289 d)   981,818 13. Use the following information for the next five questions: On January 1, 20x1, NFCPAR, Inc. acquired 10%, ?1,000,000 bonds for ?827,135. The bonds mature on December 31, 20x3 and pay annual interest every December 31. NFCPAR, Inc. incurred transaction costs of ?80,000 on the acquisition. The effective interest rate adjusted for the effect of the transaction costs is 14%.The bonds are to be held under a "hold to collect and sell" business model. Information on fair values is as follows: * December 31, 20x1..................................98 December 31, 20x2.................................102 December 31, 20x3.................................100 How much is the carrying amount of the investment on December 31, 20x1? a)   935,134 b)   1,002,000 c)   980,000 d)   965,443 14.On October 1, Dennis Company purchased ?200,000 face value, 12% bonds at 98 plus accrued interest and brokerage fees, and classified them as amortized cost assets. Interest is paid semiannually on January 1 and July 1. Brokerage fees for this transaction were ?700. At what amount should this acquisition of bonds be recorded? * a)   196,000 b)   196,700 c)   202,000 d)   202,700 15. Subsequent to their initial recognition, which financial assets with quoted market prices in an active market are measured at fair value? * Financial assets at amortized cost | Financial Assets with fair values through profit or loss a)   Yes No b)   Yes Yes c)   No Yes d)   No No