Maturity Securities account and credit cash

1.) Motown Corporation has the following information:

Par value of bonds $ 400,000

Stated Interest rate 8%

Effective Interest rate 10%

Purchased for $ 369,112

Purchased on 1/1/X2

Mature on 1/1/X7

Interest paid semi-annually on July 1

AND January 1

Bonds were purchased with the ability and intent to hold to maturity.

The entry to record the purchase of the bonds is as follows:

A. Debit the Held to and credit cash for $185,280

B. Debit the Held to Maturity Securities account and credit cash for $170,973

C. Debit the Held to Maturity Securities account and credit cash for $369,112

D. Debit the Held to Maturity Securities account and credit cash for $400,000

E. Debit the Held to Maturity Securities account and credit cash for $154,200Page 3

2.) Motown Corporation has the following information:

Par value of bonds $ 300,000

Stated Interest rate 8%

Effective Interest rate 10%

Purchased for $ 276,834

Purchased on 1/1/X2

Mature on 1/1/X7

Interest paid semi-annually on July 1

AND January 1

Carrying value at 12/31/X2 $ 280,610

Fair value at 12/31/X2 $ 285,000

The bonds are available for sale.

The journal entry required on 12/31/X2 is as follows:

A. Debit Securities Fair Value Adjustment Available for Sale and credit Gain on Available for Sale Bonds for $15,000.

B. Debit Securities Fair Value Adjustment Available for Sale and credit Gain on Available for Sale Bonds for $4,390

C. Debit Securities Fair Value Adjustment Available for Sale and credit Unrealized Holding Gain on Bonds for $4,390

D. Debit Securities Fair Value Adjustment Available for Sale and credit Unrealized Holding Gain on Bonds for $8,166.

E. For Sale Securities and credit Unrealized Holding Gain on Bonds for $8,166.Page 4

Use the following information for # 3 – 6:

Cost Fair Value

$400,000 of 10% bonds $ 356,000 $ 406,000

$100,000 of 8% bonds $ 100,000 $ 99,500

$300,000 of 12% bonds $ 302,000 $ 282,000

Previous Sec. FV Adj. $ – $ –

Totals $ 758,000 $ 787,500

3.) The total amount to go through with regard to these securities is:

A. None the amount of gain/(loss) is a separate component of stockholders equity

B. Gain of $50,000

C. Loss of $20,500

D. Gain of $29,500

E. Loss of $12,500

4.) The entry to record the above information is as follow:

A. Debit Unrealized Holding Gain or Loss on Bonds account and credit Securities Fair Value Adjustment Trading Securities.

B. Debit Securities Fair Value Adjustment Trading Securities account and credit Unrealized Holding Gain or Loss on Bonds.

C. Debit Unrealized Holding Gain or Loss on Bonds account and credit Cash.

D. Debit Securities Fair Value Adjustment Trading Securities account and credit Cash.

Motown Corporation holds the following trading securities on 12/31/X2. Assume that there was no previous adjustment to the

Securities Fair Value account:

InvestmentPage 5

5.) The impact of the above entry on the asset side of the balance sheet is as follows:

A. No impact

B. Increase

C. Decrease

6.) The unrealized gain or loss on the $400,000 10% bonds is:

A. Loss of $44,000

B. Gain of $6,000

C. Gain of $50,000

D. Loss of $50,000

E. Gain of $44,000

Use the following additional information for #7 – 9:

Fair Value Fair Value

Cost at 12/31/X2 at 12/31/X3

$400,000 of 10% bonds $ 356,000 $ 310,000 $ 342,000

$100,000 of 8% bonds $ 100,000 $ 1