Exam 13: Marketable Securities and Derivatives

Using the amortization procedure, a holder of the debt securities (the investor) records interest revenue each period by debiting the _____ and crediting _____ which after closing entries increases _____ The bonds are classified as held to maturity.

U.S.GAAP requires firms holding securities available-for-sale to value the securities on the balance sheet after acquisition at

Securities available-for-sale that a firm intends to sell within one year appear in marketable securities in the current assets section of the balance sheet.

The provisions of U.S.GAAP require firms to classify marketable securities into which categories?

U.S.GAAP and IFRS require firms to classify marketable securities that are neither debt securities held to maturity nor trading securities as _____.

Which of the following is/are not true?

The U.S.government will pay Turner Company $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 Turner Company purchases the bonds, the market prices these bonds to yield Turner Company 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 _____

Which of the following is/are true regarding reporting trading securities at fair value on the balance sheet.

When accounting for a fair value hedge of a recognized asset or liability, at the end of each period, the firm remeasures the hedged asset or liability to fair value and includes the resulting gain or loss in net income, and the derivative instrument (hedging instrument) to fair value and includes the resulting loss or gain in net income.

Which of the following is/aretrue?

Firms engage in transactions that subject them to specific financial risks.Most firms face risks-that is, variability of outcome-from changes in interest rates, foreign exchange rates, and commodity prices.Firms can purchase financial instruments to reduce these business risks, that is, to reduce the volatility of certain outcomes.Some of these instruments trade in relatively active markets, like marketable securities, while others have specialized terms and do not trade at all.The general term used for the types of financial instruments that firms might buy to mitigate the risks is a(n)

GAAP and IFRS require firms to report trading securities at fair value on the balance sheet.The income statement reports the debit (loss) for decreases in the fair value and the credit (gain) for increases in the fair value of trading securities in an account with a title such as _____.

Which of the following is/are true regarding securities classified as available-for-sale?

Describe the accounting for a fair value hedge of a recognized asset or liability.

Bartow Company acquires common stock of Champion 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.Bartow sells these shares on August 15, 2014, for $480,000. a. What is the journal entry to record acquisition of securities available-for-sale on November 1, 2013? b. What is the journal entry to measure securities available-for-sale on December 31, 2013? c. What is the journal entry to record the sale of securities available-for-sale on August 15, 2014?. d. What is the total income from the purchase and sale of these securities reported in the year of sale?

Cash flow hedges are

What is the accounting treatment for securities available for sale?

The transfer of a held-to-maturity investment in debt securities to either trading securities or securities available-for-sale would call into question the original designation of that investment.

The U.S.government will pay AirSys $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 AirSys purchases the bonds, the market prices these bonds to yield AirSys 6% annually (3% each six months).The bonds are classified as held to maturity. AirSys will pay an amount equal to _____ for the bonds.

U.S.GAAP requires firms holding debt and equity securities, as well as derivatives, as trading securities to value the securities on the balance sheet after acquisition at