Financial Accounting
3rd Edition
ISBN: 9780133791129
Author: Jane L. Reimers
Publisher: Pearson Higher Ed
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Chapter 10B, Problem 4EA
To determine
Calculate the amount at which the investments would be valued for the year-end
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The following information is also available:
1. Current assets include cash P3,800, accounts receivables P18,500, note receivables (maturity date is on July 1,2023) P10,000 and land P12,000.
2. Long term investments include a P4,600 investment in fair value though other comprehensive income securitiesthat is expected to be sold in 2022 and a P9,000 investment in AllDay company bonds that are expected to be helduntil their December 31, 2029 maturity date.
3. Property and equipment include buildings costing P63,400, inventories costing P30,500 and equipment costingP29,600.
4. Intangible assets include patents that cost P8,200 and on which P2,300 amortization have accumulated, andtreasury shares that costs P1,800.
5. Other assets include prepaid insurance (which expires on November 30, 2022) P2,900, sinking fund for bondretirement P7,000 and trademarks that cost P5,200 and on which P1,500 amortization has accumulated.
6. Current liabilities include accounts payable P19,400, bonds payable…
The following information is also available:
1. Current assets include cash P3,800, accounts receivables P18,500, note receivables (maturity date is on July 1, 2023) P10,000 and land P12,000.
2. Long term investments include a P4,600 investment in fair value though other comprehensive income securities that is expected to be sold in 2022 and a P9,000 investment in AllDay company bonds that are expected to be held until their December 31, 2029 maturity date.
3. Property and equipment include buildings costing P63,400, inventories costing P30,500 and equipment costing P29,600.
4. Intangible assets include patents that cost P8,200 and on which P2,300 amortization have accumulated, and treasury shares that costs P1,800.
5. Other assets include prepaid insurance (which expires on November 30, 2022) P2,900, sinking fund for bond retirement P7,000 and trademarks that cost P5,200 and on which P1,500 amortization has accumulated.
6. Current liabilities include accounts payable P19,400, bonds…
For the next three questions (1-3) assume what follows:
Assume that you acquired a previously issued debt instrument. According to its specifications, it
promised to pay $1,000 precisely in two years from the day of its original issue. At the time it
was issued, investors anticipated 8.00% in interest on instruments with similar characteristics and
risk level.
*Note, standard rounding rules apply to all calculations!
Q1. What price did you have to pay for this security - under assumption that you acquired it in a
secondary market precisely three months after its original issuing, and taking into account that at
the time of your acquisition investors anticipated to earn 10.00% in interest on securities with
similar features and risk characteristics?
A). $857.34
B). $846.37
3000K AS
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- A) You invest OMR 900 in a bond which gives 9% interest over a period of 2 years, the compounding is done quarterly. How much will be the value of the investment? Select one: a. 1053.24 b. 1254.74 c. 1075.34 d. 753.24 B) Which of the statements are not correct Select one: a. Profits refers to earnings before Interest and Taxes b. Investment decisions relate to pattern of financing c. Dividend pay out ratio refers to what proportion is paid to shareholders d. Borrowed funds are relatively cheaper than shareholders’ fundsarrow_forwardThe National Bank raised capital through the sale of $150 million face alue of eight percent coupon rate, ten year bonds. The bonds paid interest semiannualy and were sold at at time when equivalent risk- rated bonds carried a yield rate of ten percent. Calaculate the proceeds that the bank recieved from the sale of the eight percent bonds. How will the bonds be disclosed on the balance sheet immediately following the sale? Calaculatt the interest expense on the bonds for the first year that the bonds are outstanding. Calculate the book value of the bonds at the end of the first year. Question 1: Fill in the Bond Amortization Table and the highlighted cells using the information from E9.19 in the Data Tab. Show only positive numbers in the first table. Use Excel to do the calculations and don't round. Period Cash Payments Interest Expense Amortized Discount Discount Balance Face Value Book Value 0 $131,306,684.00 150,000,000 $150,000,000.00 1…arrow_forwardComplete the following table by putting the proper amount in each column: Assume that $100,000 was invested in each of the following classifications and the market value at the end of the year was $95,000. (For the Current Long term column indicate which classification is correct assuming there are no current maturities on long-term investments) Investment Type Carrying Value Current (C) or Long Term (LT) Adjustment To Income Adjustment to Other Comp Inc Debt Investment Trading Available-For-Sale Held-to-Maturity Equity Investment < 20% Ownership >21%,<50% Ownershiparrow_forward
- For the following investments identify whether they are: (1) Trading Securities, (2) Available-for-sale Securities, or (3) Held-to-Maturity Securities. A. Purchase bonds maturing in 20 years. The company intends to use the cash flow generated by the interest payments on the bond to provide employee bonuses. B. A bond was purchased with the intent to sell as quickly as possible. C. An investment grade bond that matures in 8 years was purchased. The company will probably hold the bond until it matures and use the proceeds to retire maturing debt. D. Five-year bonds of a troubled company were purchased this year for substantially below par value. The bonds mature in 2 months.arrow_forwardYour answer is partially correct. Swifty Ltd. issued a $1,184,000, 10-year bond dated January 1, 2023. The bond was sold to yield 12% effective interest. The bond paid 10% interest on January 1 and July 1 each year. The company's year-end was December 31, and Swifty followed IFRS. Using 1. factor Tables 2. a financial calculator, or 3. Excel function PV, calculate the amount received for the bond, and any discount or premium on the bond.arrow_forward2. Krystian Inc. issued 10-year bonds with a face value of $100,000 and a stated rate of 4% when the market rate was 6%. Interest was paid semi-annually. Calculate and explain the timing of the cash flows the purchaser of the bonds (the investor) will receive throughout the bond term. Would an investor be willing to pay more or less than face value for this bond?arrow_forward
- There are four securities, Security A, B, C, and D. All securities are traded on normal markets.Security D is equivalent to the portfolio of one unit of Security A, one unit of Security B and one unit of Security C: Security D has the same cash flow as Security A, Security B, and Security C combined.Security A is an investment that has cost of $270 today. Then after three years, this security will provide $120 each year for 10 years.Security B is a share of Company X’s stock. Company X’s stock pays no dividend today. After four years, it will pay its first dividend of $5 per share. The dividend will then grow at 5% for 3 years, and then it will grow at 3% in perpetuity.Security C is a newly-issued 15-year coupon bond with face value of $1000 and coupon rate of some percent. Its coupon is paid annually.Suppose Security A, B, and C are all risk-free. The risk-free interest rate is 9% (which is also the discount rate for all these three securities.)Suppose the current price of Security D…arrow_forwardKrystian Inc. issued 12-year bonds with a face value of $110,000 and a stated rate of 5% when the market rate was 7%. Interest was paid semi-annually. A. Calculate the cash flows the purchaser of the bonds (the investor) will receive throughout the bond term. NOTE: The requirement is referring to total interest and principal. B. Would an investor be willing to pay more or less than face value for this bond? Less thanarrow_forwardKasey Hartman is the controller for Wholemart Company, which has numerous long-term investments in debt securities. Wholemart’s investments are mainly in five-year bonds. Hartman is preparing its year-end financial statements. In accounting for long-term debt securities, she knows that each long-term investment must be designated as a held-to-maturity or an available-for-sale security. Interest rates rose sharply this past year, causing the portfolio’s fair value to substantially decline. The company does not intend to hold the bonds for the entire five years. Hartman also earns a bonus each year, which is computed as a percent of net income. Required 1. Will Hartman’s bonus depend in any way on the classification of the debt securities? Explain. 2. What criteria must Hartman use to classify the securities as held-to-maturity or available-for-sale? 3. Is there likely any company oversight of Hartman’s classification of the securities? Explain.arrow_forward
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