Question 1

U.S.GAAP and IFRS require firms to account for debt securities designated as held to maturity by not recognizing _____ but might recognize _____.

Accepted Answer

A) increases in fair value (unrealized gains); decreases in fair value (unrealized losses) 
B) decreases in fair value (unrealized losses); increases in fair value (unrealized gains) 
C) increases in future value (unrealized gains); decreases in future value (unrealized losses) 
D) decreases in future value (unrealized losses); increases in future value (unrealized gains) 
E) increases in future value (realized gains); decreases in future value (realized losses) 
A) increases in fair value (unrealized gains); decreases in fair value (unrealized losses) 
B) decreases in fair value (unrealized losses); increases in fair value (unrealized gains) 
C) increases in future value (unrealized gains); decreases in future value (unrealized losses) 
D) decreases in future value (unrealized losses); increases in future value (unrealized gains) 
E) increases in future value (realized gains); decreases in future value (realized losses)

Question 2

Alex Corporation acquires securities classified as marketable securities for $10,000.The entry is as follows:

Accepted Answer

A) Cash.........................10,000 
Marketable Securities............................10,000 
B) Marketable Securities................10,000 
Bonds Payable..................................10,000 
C) Marketable Securities.........10,000 
Common Stock.............................10,000 
D) Marketable Securities.........................10,000 Cash.............................................10,000 
E) Bonds Payable....................................10,000 
Marketable Securities....................................10,000 
A) Cash.........................10,000 
Marketable Securities............................10,000 
B) Marketable Securities................10,000 
Bonds Payable..................................10,000 
C) Marketable Securities.........10,000 
Common Stock.............................10,000 
D) Marketable Securities.........................10,000 Cash.............................................10,000 
E) Bonds Payable....................................10,000 
Marketable Securities....................................10,000

Question 3

How are hedging gains and losses treated?

Accepted Answer

TREATMENT OF HEDGING GAINS AND LOSSES
U.

Question 4

Firms can purchase financial instruments to reduce certain business risks, that is, to reduce the volatility of certain outcomes.The outcomes include changes in

Accepted Answer

A) interest rates, only. 
B) foreign exchange rates, only. 
C) commodity prices, only. 
D) interest rates and foreign exchange rates, only. 
E) interest rates, foreign exchange rates, and commodity prices. 
A) interest rates, only. 
B) foreign exchange rates, only. 
C) commodity prices, only. 
D) interest rates and foreign exchange rates, only. 
E) interest rates, foreign exchange rates, and commodity prices.

Question 5

A firm initially records the purchase of marketable securities at acquisition cost, which includes the purchase price plus any commissions, taxes, and other appropriate costs incurred.

Accepted Answer

A) True 
 B)False

Question 6

Gains and losses on effective cash flow hedges are reported initially in

Accepted Answer

A) accumulated other comprehensive income. 
B) contributed capital. 
C) net income. 
D) an adjustment to the beginning balance of retained earnings. 
E) an adjustment to the ending balance of retained earnings. 
A) accumulated other comprehensive income. 
B) contributed capital. 
C) net income. 
D) an adjustment to the beginning balance of retained earnings. 
E) an adjustment to the ending balance of retained earnings.

Question 7

The provisions of IFRS require firms to classify marketable securities into which of the following categories except

Accepted Answer

A) held to maturity investments for which a firm has both the intent and the ability to hold to maturity-shown on the balance sheet at an amount based on acquisition cost, but subject to impairment. 
B) debt and equity securities held as financial assets at fair value through profit or loss, shown on the balance sheet at fair value, with changes in fair value of securities held at the end of the accounting period reported each period in net income. 
C) debt and equity securities held as available-for-sale financial assets, shown on the balance sheet at fair value, with unrealized changes in fair value of securities held at the end of the accounting period included in other comprehensive income, and realized changes in fair value included in net income when a firm sells the securities. 
D) debt and equity securities held as available-for-sale financial assets, shown on the balance sheet at fair value, with changes in fair value of securities held at the end of the accounting period reported each period in net income. 
E) choices a and b, only. 
A) held to maturity investments for which a firm has both the intent and the ability to hold to maturity-shown on the balance sheet at an amount based on acquisition cost, but subject to impairment. 
B) debt and equity securities held as financial assets at fair value through profit or loss, shown on the balance sheet at fair value, with changes in fair value of securities held at the end of the accounting period reported each period in net income. 
C) debt and equity securities held as available-for-sale financial assets, shown on the balance sheet at fair value, with unrealized changes in fair value of securities held at the end of the accounting period included in other comprehensive income, and realized changes in fair value included in net income when a firm sells the securities. 
D) debt and equity securities held as available-for-sale financial assets, shown on the balance sheet at fair value, with changes in fair value of securities held at the end of the accounting period reported each period in net income. 
E) choices a and b, only.

Question 8

What is the accounting treatment for trading securities?

Accepted Answer

Trading Securities
Firms sometimes purch

Question 9

Which of the following is/are true?

Accepted Answer

A) A derivative is a financial instrument whose value changes in response to changes in an underlying observable variable, such as a stock price, an interest rate, a currency exchange rate, or a commodity price. 
B) Unlike equity securities, which have no definite settlement date, firms settle a derivative at a date that the terms of the instrument specify. 
C) A derivative requires an investment that is small, relative to the investment in a contract that is similarly exposed to changes in market factors, or requires no investment at all. 
D) Firms use derivative instruments to hedge the risks that arise from changes in interest rates, foreign exchange rates, and commodity prices. 
E) all of the above 
A) A derivative is a financial instrument whose value changes in response to changes in an underlying observable variable, such as a stock price, an interest rate, a currency exchange rate, or a commodity price. 
B) Unlike equity securities, which have no definite settlement date, firms settle a derivative at a date that the terms of the instrument specify. 
C) A derivative requires an investment that is small, relative to the investment in a contract that is similarly exposed to changes in market factors, or requires no investment at all. 
D) Firms use derivative instruments to hedge the risks that arise from changes in interest rates, foreign exchange rates, and commodity prices. 
E) all of the above

Question 10

Which of the following is not a derivative?

Accepted Answer

A) forward foreign exchange contract 
B) swap contract 
C) forward commodity contract 
D) a share of nonconvertible preferred stock 
E) Eurodollar future 
A) forward foreign exchange contract 
B) swap contract 
C) forward commodity contract 
D) a share of nonconvertible preferred stock 
E) Eurodollar future

Question 11

Information concerning Manley Company's portfolio of debt securities at May 31, Year 6, and May 31, Year 7, is presented below.All of the debt securities were purchased by Manley during June, Year 5.Prior to June, Year 5, Manley had no investments in debt or equity securities.
$\begin{array}{llc}\text { As of May } 31, \text { Year } 6 & \text { Amortized Cost } &\text { Fair Value }\\hline
\text { CZ Company bonds } & \$ 164,526 & \$ 168,300 \
\text { Jerry Industry bonds } & 204,964 & 205,200 \
\text { Barley Inc. bonds } & 305,785 & 285,200 \
\hline&\$675,275&\$658,700\\
\text { As of May } 31, \text { Year } 7 & \text { Amortized Cost } &\text { Fair Value }\\hline\text { CZ Company bonds } & \$ 152,565 & \$ 147,600 \
\text { Jerry Industry bonds } & 193,800 & 204,500 \
\text { Barlev Inc. bonds } & 289,130 & 291,400\&\$635,495&\$643,500
\end{array}$ (CMA adapted, Jun 97 #11) Refer to the Manley Company example.Assuming that the above securities are properly classified as available-for-sale securities under U.S.GAAP, the unrealized holding gain or loss as of May 31, Year 7, would be

Accepted Answer

A) recognized as a $8,005 unrealized holding gain on the income statement. 
B) recognized as other comprehensive income with a year-end credit balance of $8,005 in the Unrealized Holding Gain/Loss account. 
C) recognized as a $24,580 unrealized holding loss on the income statement. 
D) recognized as a $24,580 unrealized holding loss in retained earnings. 
E) recognized as other comprehensive income with a year-end credit balance of $8,005 in retained earnings. 
A) recognized as a $8,005 unrealized holding gain on the income statement. 
B) recognized as other comprehensive income with a year-end credit balance of $8,005 in the Unrealized Holding Gain/Loss account. 
C) recognized as a $24,580 unrealized holding loss on the income statement. 
D) recognized as a $24,580 unrealized holding loss in retained earnings. 
E) recognized as other comprehensive income with a year-end credit balance of $8,005 in retained earnings.

Question 12

The future value of held-to-maturity debt securities reflects the economic opportunity cost of continuing to hold the securities.

Accepted Answer

A) True 
 B)False

Question 13

The term _____ implies active and frequent buying and selling with the objective of generating profits from short-term changes in market prices.

Accepted Answer

A) gambling 
B) mad money 
C) conjecture 
D) trading 
E) ka-ching 
A) gambling 
B) mad money 
C) conjecture 
D) trading 
E) ka-ching

Question 14

U.S.GAAP requires firms holdingtrading securities to report unrealized holding gains and losses on the investments

Accepted Answer

A) in the income statement. 
B) as an adjustment to the Capital stock section of the balance sheet. 
C) in the footnotes to the financial statements. 
D) as an adjustment to the Treasury stock section of the balance sheet. 
E) none of the above 
A) in the income statement. 
B) as an adjustment to the Capital stock section of the balance sheet. 
C) in the footnotes to the financial statements. 
D) as an adjustment to the Treasury stock section of the balance sheet. 
E) none of the above

Question 15

Barry Corporation holds equity securities earning $250 through dividend declarations and debt securities earning $300 from interest earned and that it has not yet received these amounts in cash.The entry is as follows:

Accepted Answer

A) Dividend Revenue.............250 
Interest Revenue.............300
Dividends and Interest Receivable...........550 
B) Dividend Revenue...................250 
Interest Revenue.......................300
Dividends and Interest Payable..............550 
C) Dividends and Interest Receivable..................550 
Dividend Revenue......................250
Interest Revenue........................300 
D) Dividends and Interest Payable........................550 
Dividend Revenue............................250
Interest Revenue...............................300 
E) Dividends and Interest Payable........................550 
Dividends and Interest Receivable.....................550 
A) Dividend Revenue.............250 
Interest Revenue.............300
Dividends and Interest Receivable...........550 
B) Dividend Revenue...................250 
Interest Revenue.......................300
Dividends and Interest Payable..............550 
C) Dividends and Interest Receivable..................550 
Dividend Revenue......................250
Interest Revenue........................300 
D) Dividends and Interest Payable........................550 
Dividend Revenue............................250
Interest Revenue...............................300 
E) Dividends and Interest Payable........................550 
Dividends and Interest Receivable.....................550

Question 16

A firm records debt securities purchased at the acquisition cost.The acquisition cost will differ from the _______ of the debt if the __________on the bonds differs from the required ________ on the bonds at the time the firm acquired them.

Accepted Answer

A) market value; coupon rate; market yield 
B) market value; discount rate; coupon yield 
C) maturity value; coupon rate; market yield 
D) maturity value; discount rate; market yield 
E) maturity value; discount rate; coupon yield 
A) market value; coupon rate; market yield 
B) market value; discount rate; coupon yield 
C) maturity value; coupon rate; market yield 
D) maturity value; discount rate; market yield 
E) maturity value; discount rate; coupon yield

Question 17

Gains and losses on speculative securities, fair value hedges, and the ineffective portion of cash flow hedges are included in

Accepted Answer

A) accumulated other comprehensive income each period. 
B) contributed capital each period. 
C) net income each period. 
D) an adjustment to the beginning balance of retained earnings. 
E) an adjustment to the ending balance of retained earnings. 
A) accumulated other comprehensive income each period. 
B) contributed capital each period. 
C) net income each period. 
D) an adjustment to the beginning balance of retained earnings. 
E) an adjustment to the ending balance of retained earnings.

Question 18

U.S.GAAP requires which of the following disclosures about marketable securities each period?

Accepted Answer

A) The aggregate fair value, gross unrealized holding gains, gross unrealized holding losses, and amortized cost for debt securities held to maturity and for debt and equity securities available-for-sale. 
B) The proceeds from sales of securities available-for-sale, and the gross realized gains and gross realized losses on those sales.The statement of cash flows shows the cash expenditures to purchase available-for-sale securities and the cash receipts from maturities and sales of available-for-sale securities. 
C) The change during the period in the net unrealized holding gain or loss on securities available-for-sale included in a separate shareholders' equity account. 
D) The change during the period in the net unrealized holding gain or loss on trading securities included in earnings. 
E) all of the above 
A) The aggregate fair value, gross unrealized holding gains, gross unrealized holding losses, and amortized cost for debt securities held to maturity and for debt and equity securities available-for-sale. 
B) The proceeds from sales of securities available-for-sale, and the gross realized gains and gross realized losses on those sales.The statement of cash flows shows the cash expenditures to purchase available-for-sale securities and the cash receipts from maturities and sales of available-for-sale securities. 
C) The change during the period in the net unrealized holding gain or loss on securities available-for-sale included in a separate shareholders' equity account. 
D) The change during the period in the net unrealized holding gain or loss on trading securities included in earnings. 
E) all of the above

Question 19

The term marketable securities refers to the financial instruments that firms classify as held-to-maturity, trading, or available-for-sale securities, recognizing that the term does not have a precise definition in U.S.GAAP or IFRS.

Accepted Answer

A) True 
 B)False

Question 20

U.S.GAAP and IFRS require firms to account for debt securities designated as held to maturity at _____ except that they are also subject to _____.That is, firms do not recognize increases in fair value (unrealized gains) but might recognize decreases in fair value(unrealized losses).

Accepted Answer

A) amortized cost; impairment 
B) present value; depreciation 
C) net realizable value; impairment 
D) amortized cost; destruction 
E) net realizable value; depreciation 
A) amortized cost; impairment 
B) present value; depreciation 
C) net realizable value; impairment 
D) amortized cost; destruction 
E) net realizable value; depreciation

U.S.GAAP and IFRS require firms to account for debt securities designated as held to maturity by not recognizing _ but might recognize _.

Alex Corporation acquires securities classified as marketable securities for $10,000.The entry is as follows:

How are hedging gains and losses treated?

Firms can purchase financial instruments to reduce certain business risks, that is, to reduce the volatility of certain outcomes.The outcomes include changes in

A firm initially records the purchase of marketable securities at acquisition cost, which includes the purchase price plus any commissions, taxes, and other appropriate costs incurred.

Gains and losses on effective cash flow hedges are reported initially in

The provisions of IFRS require firms to classify marketable securities into which of the following categories except

What is the accounting treatment for trading securities?

Which of the following is/are true?

Which of the following is not a derivative?

The future value of held-to-maturity debt securities reflects the economic opportunity cost of continuing to hold the securities.

The term _____ implies active and frequent buying and selling with the objective of generating profits from short-term changes in market prices.

U.S.GAAP requires firms holdingtrading securities to report unrealized holding gains and losses on the investments

Barry Corporation holds equity securities earning $250 through dividend declarations and debt securities earning $300 from interest earned and that it has not yet received these amounts in cash.The entry is as follows:

A firm records debt securities purchased at the acquisition cost.The acquisition cost will differ from the _ of the debt if the on the bonds differs from the required ____ on the bonds at the time the firm acquired them.

Gains and losses on speculative securities, fair value hedges, and the ineffective portion of cash flow hedges are included in

U.S.GAAP requires which of the following disclosures about marketable securities each period?

The term marketable securities refers to the financial instruments that firms classify as held-to-maturity, trading, or available-for-sale securities, recognizing that the term does not have a precise definition in U.S.GAAP or IFRS.

U.S.GAAP and IFRS require firms to account for debt securities designated as held to maturity at _ except that they are also subject to _.That is, firms do not recognize increases in fair value (unrealized gains) but might recognize decreases in fair value(unrealized losses).

Introduction to Business Activities and Overview of Financial Statements and the Reporting Process

The Basics of Record Keeping and Financial Statement Preparation: Balance Sheet

The Basics of Record Keeping and Financial Statement Preparation: Income Statement

Balance Sheet: Presenting and Analyzing Resources and Financing

Income Statement: Reporting Results of Operating Activities

Statement of Cash Flows

Introduction to Financial Statement Analysis

Revenue Recognition, Receivables, and Advances From Customers

Working Capital

Long-Lived Tangible and Intangible Assets

Notes, Bonds, and Leases

Liabilities: Off-Balance Sheet Financing, Retirement Benefits, and Income Taxes

Intercorporate Investments in Common Stock

Shareholders Equity: Capital Contributions and Distributions

Statement of Cash Flows: Another Look

Synthesis and Extensions

Filters

Exam 13: Marketable Securities and Derivatives

U.S.GAAP and IFRS require firms to account for debt securities designated as held to maturity by not recognizing _____ but might recognize _____.

Alex Corporation acquires securities classified as marketable securities for $10,000.The entry is as follows:

How are hedging gains and losses treated?

Firms can purchase financial instruments to reduce certain business risks, that is, to reduce the volatility of certain outcomes.The outcomes include changes in

A firm initially records the purchase of marketable securities at acquisition cost, which includes the purchase price plus any commissions, taxes, and other appropriate costs incurred.

Gains and losses on effective cash flow hedges are reported initially in

The provisions of IFRS require firms to classify marketable securities into which of the following categories except

What is the accounting treatment for trading securities?

Which of the following is/are true?

Which of the following is not a derivative?

The future value of held-to-maturity debt securities reflects the economic opportunity cost of continuing to hold the securities.

The term _____ implies active and frequent buying and selling with the objective of generating profits from short-term changes in market prices.

U.S.GAAP requires firms holdingtrading securities to report unrealized holding gains and losses on the investments

Barry Corporation holds equity securities earning $250 through dividend declarations and debt securities earning $300 from interest earned and that it has not yet received these amounts in cash.The entry is as follows:

A firm records debt securities purchased at the acquisition cost.The acquisition cost will differ from the _______ of the debt if the __________on the bonds differs from the required ________ on the bonds at the time the firm acquired them.

Gains and losses on speculative securities, fair value hedges, and the ineffective portion of cash flow hedges are included in

U.S.GAAP requires which of the following disclosures about marketable securities each period?

The term marketable securities refers to the financial instruments that firms classify as held-to-maturity, trading, or available-for-sale securities, recognizing that the term does not have a precise definition in U.S.GAAP or IFRS.

U.S.GAAP and IFRS require firms to account for debt securities designated as held to maturity at _____ except that they are also subject to _____.That is, firms do not recognize increases in fair value (unrealized gains) but might recognize decreases in fair value(unrealized losses).

Introduction to Business Activities and Overview of Financial Statements and the Reporting Process

The Basics of Record Keeping and Financial Statement Preparation: Balance Sheet

The Basics of Record Keeping and Financial Statement Preparation: Income Statement

Balance Sheet: Presenting and Analyzing Resources and Financing

Income Statement: Reporting Results of Operating Activities

Statement of Cash Flows

Introduction to Financial Statement Analysis

Revenue Recognition, Receivables, and Advances From Customers

Working Capital

Long-Lived Tangible and Intangible Assets

Notes, Bonds, and Leases

Liabilities: Off-Balance Sheet Financing, Retirement Benefits, and Income Taxes

Intercorporate Investments in Common Stock

Shareholders Equity: Capital Contributions and Distributions

Statement of Cash Flows: Another Look

Synthesis and Extensions

Filters

U.S.GAAP and IFRS require firms to account for debt securities designated as held to maturity by not recognizing _ but might recognize _.

A firm records debt securities purchased at the acquisition cost.The acquisition cost will differ from the _ of the debt if the on the bonds differs from the required ____ on the bonds at the time the firm acquired them.

U.S.GAAP and IFRS require firms to account for debt securities designated as held to maturity at _ except that they are also subject to _.That is, firms do not recognize increases in fair value (unrealized gains) but might recognize decreases in fair value(unrealized losses).