ACC 102_Final Quiz

      If the acquisition cost of investment in bonds is less than the face amount, there is 

(a)  

•  discount
•  premium
•  loss
•  gain

      The use of the effective-interest method in amortizing bond premiums and discounts results in 

•  a greater amount of interest income over the life of the bond issue than would result from use of the straight-line method

•  a varying amount being recorded as interest income from period to period

•  a variable rate of return on the book value of the investment

•  a smaller amount of interest income over the life of the bond issue than would result from use of the straight-line method

If the effective interest rate is higher than the nominal rate, there is

(a)  

•  discount
•  premium
•  loss
•  gain

The true or actual rate of interest that a bondholder earns on the investment

•  nominal rate

•  coupon rate

•  effective interest rate

•  stated rate

When an investor's accounting period ends on a date that does not coincide with an interest receipt date for bonds held as an investment, the investor must

• make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for the amount of interest accrued since the last interest receipt date.

• notify the issuer and request that a special payment be made for the appropriate portion of the interest period.

• make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for the total amount of interest to be received at the next interest receipt date.

• do nothing special and ignore the fact that the accounting period does not coincide with the bond's interest period.

Investments in debt securities are generally recorded at

• cost including accrued interest.

• maturity value.

• cost including brokerage and other fees.

• maturity value with a separate discount or premium account.

It is a bond that gives the holder the right to exchange the par amount of the bond for ordinary shares of the issuer at some fixed ratio during a particular period.

• convertible bond

• exchangeable bond

• extendible bond

• optimus prime bond

Jordan Co. purchased ten-year, 10% bonds that pay interest semiannually. The bonds are sold to yield 8%. One step in calculating the issue price of the bonds is to multiply the principal by the table value for

• 10 periods and 10% from the present value of 1 table.

• 10 periods and 8% from the present value of 1 table.

• 20 periods and 5% from the present value of 1 table.

• 20 periods and 4% from the present value of 1 table.

In recording a sale of a debt security before maturity date, accrued interest will be received by the seller even though it is not an interest payment date.

• True

• False

Financial Assets at Amortized Cost are classified as ​ (a)  

• noncurrent assets
• current liability
• noncurrent liability or assets
• noncurrent liability
• part of equity
• current assets