This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: Becker CPA Review, PassMaster Questions Lecture: Financial 3 1 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. CPA PassMaster Questions–Financial 3 Export Date: 10/30/08 Becker CPA Review, PassMaster Questions Lecture: Financial 3 2 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. Marketable Securities CPA-00263 Type1 M/C A-D Corr Ans: B PM#1 F 3-01 1. CPA-00263 FARE R96 #6 Page 3 When the fair value of an investment in debt securities exceeds its amortized cost, how should each of the following debt securities be reported at the end of the year? Debt securities classified as Held-to-maturity Available-for-sale a. Amortized cost Amortized cost b. Amortized cost Fair value c. Fair value Fair value d. Fair value Amortized cost CPA-00263 Explanation Choice "b" is correct. According to SFAS 115, debt securities (bonds) classified as held-to-maturity are reported at amortized cost (that is, cost adjusted for amortization of premium or discount; approaches face value). Debt securities classified as available-for-sale are reported at fair value. Note that SFAS 130 changes the treatment of unrealized holding gains and losses from available-for-sale securities. Such gain/loss is excluded from earnings (per SFAS 115), however, per SFAS 130, it is reported as a component of accumulated other comprehensive income. Choice "a" is incorrect. While amortized cost is the appropriate treatment for debt securities classified as held-to-maturity, this is not the correct treatment for securities classified as available-for-sale. Choice "c" is incorrect. Fair value is not the appropriate treatment for debt securities classified as held-to- maturity. Choice "d" is incorrect. Fair value is not the appropriate treatment for debt securities classified as held-to- maturity. Nor is amortized cost the appropriate treatment for debt securities classified as available-for- sale. CPA-00266 Type1 M/C A-D Corr Ans: B PM#3 F 3-01 2. CPA-00266 FARE Nov 94 #10 Page 3 Kale Co. has adopted Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities. Kale purchased bonds at a discount on the open market as an investment and intends to hold these bonds to maturity. Kale should account for these bonds at: a. Cost. b. Amortized cost. c. Fair value. d. Lower of cost or market. CPA-00266 Explanation Choice "b" is correct. Bond investments which are intended to be held until the maturity date are classified as held-to-maturity securities and are reported at their amortized cost. Choice "a" is incorrect. Investments in marketable securities are reported at fair value or at their amortized cost, depending on their classification....
View Full Document
This note was uploaded on 09/25/2011 for the course ACCOUNTING AC555ON taught by Professor Abekele during the Spring '10 term at Keller Graduate School of Management.
- Spring '10