Reference no: EM132832515

Questions -

Q1) On July 1 of 2021, Inpixar Inc. issued $250,000 of 9% bonds to RAST Corp. The bonds pay interest semiannually on June 30 and December 31, and have a maturity date of June 30, 2025. Management of RAST Corp intends to hold the investment to maturity. On July 1, 2021, the rate for bonds of similar risk and maturity was 8%. On July 1, 2021, which of the following entries would RAST Corp record to recognize the purchase?

a) DR to Premium on Inpixar Bonds.

b) DR to Discount on Inpixar Bonds.

c) DR to Investment in Inpixar Bonds for $250,000.

d) DR to Investment in Inpixar BoNDs for $259,500.

Q2) Refer to the facts in problem 1. If RAST Corp holds the bonds on June 30, 2022, how much cash will they receive from Inpixar for the first bond coupon payment?

a) $22,500

b) $20,000

c) $11,250

d) $10,000

Q3) True/False. If the market value of the Inpixar bonds was higher than amortized cost of the bonds reported on RAST Corp's balance sheet at December 31, 2021, RAST Corp would recognize an unrealized holding gain on the bonds, which would increase 2021 other comprehensive income.

a) True

b) False

Q4) At year-end, management decided to sell AFS securities with a face amount of $9,000 and an amortized cost of $8,150 for $8,800 cash. The sale would result in:

a) A realized gain of $200.

b) A realized loss of $200.

c) A realized gain of $650.

d) A realized loss of $650.

Q5) The fraction of a fictional financial institution's total assets is 95% trading securities. A downside of fair value accounting treatment for these assets is:

a) In periods of significant economic recession, the value of the firm's assets will likely decline.

b) In periods of significant economic recession, the value of the firm's assets will likely increase.

c) It is more difficult for investors to use reported assets to determine the intrinsic value of the firm.

d) The reported value of the assets is less useful for valuation, because they are not reported at cost.

Q6) JFE Shipping acquired 25% of RFS Inc.'s common shares on 09/01/20X1. During 20X1, RFS Inc. incurred a net loss of $80,000. JFE Shipping accounts for its investment in RFS Inc. using the equity method. What effect will RFS Inc.'s operations have on JFE Shipping's financial statements?

a) Increase assets by $20,000; Increase pretax income by $20,000.

b) Decrease assets by $20,000; Decrease pretax income by $20,000.

c) Increase assets by $5,000; Increase pretax income by $5,000.

d) Decrease assets by $5,000; Decrease pretax income by $5,000.