Exam 13: Marketable Securities and Derivatives

Using the amortization procedure for bonds, if an investor receives cash each period, it debits Cash and credits the Marketable Securities account.The result of this process is a new _____ (called the _____ for use in the computations during the next period. The bonds are classified as held to maturity.

Marco Insurance Marco Insurance acquired shares of Penny Systems' common stock on December 28, 2013, for $400,000 and classified them as trading securities.The fair value of these securities on December 31, 2013, was $402,000.Marco Insurance sold these shares on January 3, 2014, for $405,000. (Refer to Marco Insurance.) The total income from the purchase and sale of these securities is

U.S.GAAP requires firms holding debt and equity securities as securities available-for-sale to treat unrealized holding gains or losses each period as

When accounting for a cash flow hedge of an recognized asset or liability, which of the following is/are true?

The investor recognizes dividends on equity securities as revenue when the

The investor recognizes interest on debt securities when

Which of the following is/are elements of a derivative?

ValleyView Company ValleyView Company acquires common stock of Kansas Enterprises for $400,000 on November 1, 2013, and designates this investment as available-for-sale.The fair value of these shares is $435,000 on December 31, 2013.ValleyView sells these shares on August 15, 2014, for $480,000. (Refer to ValleyView.) The journal entry to record acquisition of securities available-for-sale on November 1, 2013 is:

Which of the following is/are elements of a derivative?

A fair value hedge

Firms sometimes acquire debt securities with the intention of holding these securities until maturity.U.S.GAAP and IFRS require firms to measure marketable securities for which firms have an intent and ability to hold to maturity by _____.A firm initially records these debt securities at acquisition cost.This acquisition cost will differ from the maturity value of the debt if the coupon rate on the bonds differs from the _____.

The argument for measuring held-to-maturity debt securities at amortized cost and ignoring most changes in fair value during the contractual term of the debt is/are

Short-term marketable equity securities were acquired on July 1, Year 1 for $23,000, and classified as available-for-sale.On December 31, Year 1, the securities had a market value of $24,000, determined as follows: What adjustment is required to reflect December 31, Year 1 fair value?

U.S.GAAP and IFRS require firms to classify derivatives as

Derivative instruments acquired to hedge exposure to changes in the fair values of assets or liabilities are fair value hedges.Fair value hedges are

Gains and losses on effective cash flow hedges initially affect other comprehensive income, not net income.

Cash flow hedges are revalued to market value each period and gains and losses from changes in the market values of such derivatives appears

Describe the accounting for derivatives.

U.S.GAAP and IFRS require firms to report trading securities at _____.

The U.S.government will pay Allen $2,500,000 each six months, equal to 2.5% of the $100 million face amount of the treasury bonds (5% annual coupon rate, paid in two installments each year), and will repay the $100 million at the end of five years.At the time Allen purchases the bonds, the market prices these bonds to yield Allen 6% annually (3% each six months).The bonds are classified as held to maturity.Because the market requires a _____ than the _____ on the bonds, the bonds will sell on the market for a _____.