Need A Tutor?    |   Need Homework Help?                                                                             Help and Support     | Join or Cancel

    Homework   1.1  1.2   2.1  2.2  3.1  3.2   4.1  4.2  5.1  5.2   6.1   6.2  7.1  7.2  8.1  8.2  9.1  9.2  10.1   10.2  11.1   11.2  12.1  12.2   13.1  13.2

On December 31, 2021, Sparrow Company has bonds with an amortized cost of $424,000 and a fair value of $452,000.
These bonds are properly classified as trading debt securities. On January 12, 2022, Sparrow sells the bonds for $450,000.
Just prior to recording the sale on January 12, 2022, the journal entry to update the fair value adjustment account will include:
 
credit to fair value adjustment                  $2,000
   
On January 1, a company issued and sold a $300,000, 5%, 10-year bond payable, and received
proceeds of $293,000. Interest is payable each June 30 and December 31.
The company uses the straight-line method to amortize the discount.
The carrying value of the bonds immediately after the first interest payment is:
 
$293,350.
 
300,000 - 293,000) / 20 = 350
300,000 - 6,650 = 293,350.
   
Clabber Company has bonds outstanding with a par value of $119,000 and a carrying value of $108,700.
If the company calls these bonds at a price of $104,500, the gain or loss on retirement is:
 
$4,200 gain
 
108,700 − 104,500 = 4,200
   
Northern Company has bonds with an amortized cost of $600,000. At the end of the first reporting period, the bonds had a fair value of
$675,000. 2 days after the end of the first reporting period, the bonds have a fair value of $680,000 and Northern decides to sell the bonds.
The initial investment in the bonds was $700,000 and the discount on bond account has a $100,000 balance.
Northern properly classifies these bonds as trading securities. The journal entry to record the sale of the bonds includes
(Select all that apply.)
 
Debit: Cash $680,000
Debit: Discount on bond investment $100,000
Credit: Fair value adjustment $80,000
Credit: Investment on bond - $700,000
   
Adonis Corporation issued 10-year, 11% bonds with a par value of $270,000. Interest is paid semiannually.
The market rate on the issue date was 10%. Adonis received $286,827 in cash proceeds.
Which of the following statements is true?
 
Adonis must pay $270,000 at maturity plus 20 interest payments of $14,850 each.
 
270,000 × 11% × 0.5 = 14,850
 
A company has bonds outstanding with a par value of $100,000.
The unamortized discount on these bonds is $5,000.
The company calls these bonds at a price of $92,000 the gain or loss on retirement is:
 
$3,000 gain.
 
100,000 - 5,000 = 95,000
95,000 - 92,000 = 3,000
   
Margot Company purchases $100,000 face amount, 6% semi-annual bonds for $110,000 when the market interest rate is 5%.
The journal entry to record the interest for the first 6-month period includes (Select all that apply.)
 
Debit - Cash $3000
Credit - Premium on bond investment $250
Credit - Investment revenue $ 2750
   
Action Company sells bond investments classified as trading securities for $99,000.
The face amount is $100,000; unamortized discount is
$2,000. What must be included in the journal entry to record the sale? (Select all that apply.)
 
Debit - Cash $99,000
Debit - Discount- $2,000
Credit - Investment in bonds - $ 100,000
Credit - Fair value adjustment - $1,000
   
Metlock Inc. purchased land at a price of $56,160. Closing costs were $2,916. An old barn was removed at a cost of $6,048.
What amount should be recorded as the cost of the land? Cost of land to be recorded $ ______________
 
$67,284
 
58,320 + 2,916 + 6,048 = 67,284
   
Gerhard Company purchases debt investments for $200,000 and classifies them as available-for-sale securities.
At the end of the accounting period, the fair value has increased to $207,000. Gerhard should report its investment at:
 
$207,000
   
A company issues 7% bonds with a par value of $70,000 at par on January 1.
The market rate on the date of issuance was 6%. The bonds pay interest semiannually on January 1 and July 1.
The cash paid on July 1 to the bond holder(s) is:
 
$2,450
 
70,000 × 0.07 × 1/2 year = 2,450
   
Markus Company sells 1,000 bonds of its debt investment in Berta Inc. for $20,000.
The original cost of the 1,000 bonds was $18,000. During the prior year, the bonds were reported on the balance sheet at a fair
value of $19,000. On the date of sale, Markus should recognize a realized gain of _____ in net income.
(Assume the debt investment was accounted for as available-for-sale and all unrealized holding gains and losses have been reversed.)
 
$2,000
   
Watauga Company purchased equipment on July 1, 2017 for $70,000. Sales tax on the purchase was $700.
Other costs incurred were freight charges of $800, insurance during shipping of $ 150, repairs of $1,300
for damage during installation, and installation costs of $1, 050. What is the cost of the equipment?
 
$72,700

The cost is the Purchase price,
70,000 + 700 + 800 + 150 + 1,050 = 72,700.
   
The cost of manufacturing equipment would include all of the following except:
 
cost of training the equipment operator.
   
Assume that last year T-bills returned 2.8 percent while your investment in large-company stocks
earned an average of 7.6 percent. Which one of the following terms refers to the difference
between these two rates of return?
 
risk premium
   
Which one of the following correctly describes the dividend yield?
 
Next year's annual dividend divided by today's stock price
   
Which one of the following categories of securities had the lowest average risk premium for the period 1926-2016?
 
U.S. Treasury bills
   
Stacy purchased a stock last year and sold it today for $4 a share more than her purchase price.
She received a total of $1.15 per share in dividends.
Which one of the following statements is correct in relation to this investment?
 
The capital gains yield is positive.
   
Suppose a stock had an initial price of $62 per share, paid a dividend of $1.10 per
share during the year, and had an ending share price of $74.
 
21.13%
 
(74 - 62 + 1.10) / 62 = 0.2113 or 21.13%
   
You bought one of Great White Shark Repellant Co.'s 8 percent coupon bonds one year ago
for $1,059. These bonds make annual payments and mature 10 years from now. Suppose you
decide to sell your bonds today, when the required return on the bonds is 7 percent.
The bonds have a par value of $1,000. If the inflation rate was 4.8 percent over the past year,
 what was your total real return on investment?
 
3.64%
   
Which of the following statements are true based on the historical record for 1926-2016?
 
Bonds are generally a safer, or less risky, investment than are stocks.
   
A stock had returns of 5 percent, 14 percent, 11 percent, −8 percent, and 6 percent over the
past five years. What is the standard deviation of these returns?
 
8.44%
 
A company issues 10%, 5-year bonds with a par value of $120,000 on January 1 at a price of $124,748, when
 the market rate of interest was 9%. The bonds pay interest semiannually.
The amount of each semiannual interest payment is:
 
$6,000
 
120,000 × 0.10 × 6 / 12 year = 6,000
   
Suppose a stock had an initial price of $80 per share, paid a dividend of $.60 per share during
the year and had an ending share price of $88. What was the dividend yield and the capital gains yield?
 
Dividend 0.75%
Capital Gains 10.00%
   
The return earned in an average year over a multiyear period is called the _____ average return.
 
arithmetic
   
Suppose a stock had an initial price of $84 per share, paid a dividend of $1.50 per share during the year,
and had an ending share price of $73. Compute the percentage total return, dividend yield, and capital gains yield.
 
Total Return -11.31%
Dividend 1.79%
Capital Gain -13.10%
 
(73 - 84 + 1.50) / 84 = −.1131, or −11.31%
1.50 / 84 = .0179, or 1.79%
(73 - 84) / 84 = −.1310, or −13.10%
   
Which one of the following categories of securities had the highest average annual return for the period 1926-2016?
 
Small-company stocks
   
The common stock of Air Express had annual returns of 11.7 percent, 8.8 percent, 16.7 percent,
and −7.9 percent over the last four years, respectively. What is the standard deviation of these returns?
 
10.66%
   
Standard deviation is a measure of which one of the following?
 
Volatility
   
The average compound return earned per year over a multiyear period is called the _____ average return.
 
geometric
   
To convince investors to accept greater volatility, you must:
 
increase the risk premium
   
Which one of the following is a correct ranking of securities based on the volatility of their annual returns
over the period of 1926-2016? Rank from highest to lowest.
 
Long-term government bonds, long-term corporate bonds, intermediate-term government bonds
   
Estimates of the rate of return on a security based on the historical arithmetic average
will probably tend to _____ the expected return for the long-term and estimates using
the historical geometric average will probably tend to _____ the expected return for the short-term.
 
overestimate; underestimate
   
Which one of the following statements best defines the efficient market hypothesis?
 
All securities in an efficient market are zero net present value investments.
   
Efficient financial markets fluctuate continuously because:
 
the markets are continually reacting to new information.
   
Inside information has the least value when financial markets are:
 
strong form efficient
   
Evidence seems to support the view that studying public information to identify mispriced stocks is:
 
Ineffective
   
The accounting for interest costs incurred during construction recommended under GAAP is to:
 
capitalize the lesser of actual interest cost for the period or the amount of interest cost incurred
during the period that the company could have avoided if expenditures for the asset had not been made.
 
   
Which form of market efficiency would most likely offer the greatest profit potential to an outstanding
professional stock analyst?
 
weak
   
You are aware that your neighbor trades stocks based on confidential information he overhears at his workplace.
This information is not available to the general public. This neighbor continually brags to you about the profits
he earns on these trades. Given this, you would tend to argue that the financial markets are at best _____ form efficient.
 
semi strong
   
The U.S. Securities and Exchange Commission periodically charges individuals with insider trading and claims
those individuals have made unfair profits. Given this, you would be most apt to argue that the markets are less
than _____ form efficient.
 
strong
   
One year ago, you purchased 200 shares of SL Industries stock at a price of $18.97 a share.
The stock pays an annual dividend of $1.42 per share. Today, you sold all of your shares for $17.86 per share.
What is your total dollar return on this investment?
 
$62
   
Suppose a stock had an initial price of $76 per share, paid a dividend of $1.42 per share during the year,
and had an ending share price of $81. What was the capital gains yield?
 
6.58%
   
One year ago, you purchased a stock at a price of $38.22 a share. Today, you sold the stock and realized
a total loss of 11.09 percent on your investment. Your capital gain was -$4.68 a share.
What was your dividend yield?
 
1.15%
   
Calculating Returns: Suppose a stock had an initial price of $72 per share, paid a dividend of $1.20
per share during the year and had an ending share price of $79. Compute the percentage total return.
 
11.39%

    Homework   1.1  1.2   2.1  2.2  3.1  3.2   4.1  4.2  5.1  5.2   6.1   6.2  7.1  7.2  8.1  8.2  9.1  9.2  10.1   10.2  11.1   11.2  12.1  12.2   13.1  13.2