Which of the following is true of the comparison between equity securities and debt securities?
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- Which statement is not true? Equity investment and trading debt investment have the same accounting about how to report their unrealized gain/loss and how to report them on the balance sheet. Only debt securities, not equity securities, can be classified as held-to-maturity, available-for-sale or trading. Change in fair value of available-for-sale and held-to-maturity debt investments have no impact on net income. Cash flows relating to held-to-maturity investments and trading investments involve both investing and operating activities.1. Investments in debt securities are classified for accounting purposes as: A. Financial asset at amortized cost (AC), fair value through other comprehensive income (FVOCI) or fair value through profit or loss (FVPL) B. Financial asset at amortized cost (AC) or fair value through other comprehensive income (FVOCI) only C. Trading, Available-for-Sale (AFS) or Held-to-Maturity (HTM) D. Available-for-Sale (AFS) or Held-to-Maturity (HTM) onlyWhen a company redeems bonds at a premium to carrying value, that activity is usually classified as: a. operating b. financing c. investing
- Under IFRS No. 9, what reporting categories are used to account for debt investments? What about for equityinvestments when the investor lacks the ability to significantly influence the operations of the investee?When bonds and other debt securities are issued, payments such as legal costs, printing costs, and underwriting fees, are referred to as debt issuance costs (called transaction costs under IFRS). If Rushing International prepares its financial statements using IFRS: a. the recorded amount of the debt is increased by the transaction costs. b. the decrease in the effective interest rate caused by the transaction costs is reflected in the interest expense. c. the transaction costs are recorded separately as an asset. d. the increase in the effective interest rate caused by the transaction costs is reflected in the interest expense.1. More than one measurement bases apply to investments in debt securities and investment in equity under PFRS 9. What are these measurement bases?2. Identify critical questions to be asked in applying PFRS 9 in the measurement of financial assets.3. How would you distinguish an equity instrument from a debt instrument?
- Both stock and debt returns are based on the cash flows generated by the issuing firm. How do common shareholders and debtholders differ in their claim of the firm’s cash flows? How does such a claim difference cause the risk difference between common stocks and debts (including bonds)? essay formatWhen the market value of a company’s portfolio of available-for-sale securities is lower than its cost,the difference should be: a. accounted for as a valuation allowance deducted from the asset to which it relates b. accounted for as an addition in the shareholders’ equity section of the balance sheet c. accounted for as a liability d. disclosed and described in a note to the financial statements but not accounted for.For each case of a financial asset that is not related to one another, explain (must be accompanied by an explanation) whether meeting the contractual cash flow test consists of only principal and interest: 1) Investments in debt instruments in the form of bonds with a specified maturity date. The bonds have a predetermined principal payment and interest on the principal amount payable is linked to the stock equity index on the stock exchange 2) Investments in debt instruments in the form of bonds from toll road management companies, whose contractual cash flows from these financial assets change according to the number of motorized vehicles that use certain toll roads. 3) Investments in debt instruments with a specified maturity date. A variable interest rate which gives the borrower the option of choosing a market rate of three months LIBOR for three months or one month LIBOR for one month
- Which of the following is NOT correct regarding trading securities * a. Unrealized holding gains or losses are reported in profit or loss b. Share in profit of the investee increases carrying value of the investment c. These are classified as current assets. d. Cash dividends shall be recognized as dividend incomeWhich of the following is not a financing activity: O Issuance of bonds payable Sale of investment Purchase of treasury stock O Issuance of common stockWhy would a company invest in debt or equity securities?