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1. Which of the following is not a debt security?

1. Which of the following is not a debt security?
a. Convertible bonds
b. Commercial paper
c. Loans receivable
d. All of these are debt securities.
2. A correct valuation is
a. available-for-sale at amortized cost.
b. held-to-maturity at amortized cost.
c. held-to-maturity at fair value.
d. none of these.
3. Securities which could be classified as held-to-maturity are
a. redeemable preferred stock.
b. warrants.
c. municipal bonds.
d. treasury stock.
4. Unrealized holding gains or losses which are recognized in income are from securities classified as
a. held-to-maturity.
b. available-for-sale.
c. trading.
d. none of these.
5. When an investor's accounting period ends on a date that does not coincide with an interest receipt date for bonds held as an investment, the investor must
a. make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for the amount of interest accrued since the last interest receipt date.
b. notify the issuer and request that a special payment be made for the appropriate portion of the interest period.
c. make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for the total amount of interest to be received at the next interest receipt date.
d. do nothing special and ignore the fact that the accounting period does not coincide with the bond's interest period.
6. Debt securities that are accounted for at amortized cost, not fair value, are
a. held-to-maturity debt securities.
b. trading debt securities.
c. available-for-sale debt securities.
d. never-sell debt securities.
7. Convertible bonds
a. have priority over other indebtedness.
b. are usually secured by a first or second mortgage.
c. pay interest only in the event earnings are sufficient to cover the interest.
d. may be exchanged for equity securities.
8. The conversion of bonds is most commonly recorded by the
a. incremental method.
b. proportional method.
c. market value method.
d. book value method.
9. When a bond issuer offers some form of additional consideration (a "sweetener") to induce conversion, the sweetener is accounted for as a(n)
a. extraordinary item.
b. expense.
c. loss.
d. none of these.
10. Corporations issue convertible debt for two main reasons.  One is the desire to raise equity capital that, assuming conversion, will arise when the original debt is converted.  The other is
a. the ease with which convertible debt is sold even if the company has a poor credit rating.
b. the fact that equity capital has issue costs that convertible debt does not.
c. that many corporations can obtain financing at lower rates.
d. that convertible bonds will always sell at a premium.

1. Which of the following is not a debt security?
a. Convertible bonds
b. Commercial paper
c. Loans receivable
d. All of these are debt securities.
 
2. A correct valuation is
a. available-for-sale at amortized cost.
b. held-to-maturity at amortized cost.
c. held-to-maturity at fair value.
d. none of these.
 
3. Securities which could be classified as held-to-maturity are
a. redeemable preferred stock.
b. warrants.
c. municipal bonds.
d. treasury stock.
 
4. Unrealized holding gains or losses which are recognized in income
are from securities classified as
a. held-to-maturity.
b. available-for-sale.
c. trading.
d. none of these.
 
5. When an investor's accounting period ends on a date that does not
coincide with an interest receipt date for bonds held as an investment,
the investor must
a. make an adjusting entry to debit Interest Receivable and to credit
Interest Revenue for the amount of interest accrued since the last
interest receipt date.
b. notify the issuer and request that a special payment be made for the
appropriate portion of the interest period.
c. make an adjusting entry to debit Interest Receivable and to credit
Interest Revenue for the total amount of interest to be received at the
next interest receipt date.
d. do nothing special and ignore the fact that the accounting period
does not coincide with the bond's interest period.
 
6. Debt securities that are accounted for at amortized cost, not fair
value, are
a. held-to-maturity debt securities.
b. trading debt securities.
c. available-for-sale debt securities.
d. never-sell debt securities.
 
7. Convertible bonds
a. have priority over other indebtedness.
b. are usually secured by a first or second mortgage.
c. pay interest only in the event earnings are sufficient to cover the
interest.
d. may be exchanged for equity securities.
 
8. The conversion of bonds is most commonly recorded by the
a. incremental method.
b. proportional method.
c. market value method.
d. book value method.
 
9. When a bond issuer offers some form of additional consideration (a
“sweetener”) to induce conversion, the sweetener is accounted for as
a(n)
a. extraordinary item.
b. expense.
c. loss.
d. none of these.
 
10. Corporations issue convertible debt for two main reasons. One is
the desire to raise equity capital that, assuming conversion, will arise
when the original debt is converted. The other is
a. the ease with which convertible debt is sold even if the company has
a poor credit rating.
b. the fact that equity capital has issue costs that convertible debt
does not.
c. that many corporations can obtain financing at lower rates.
d. that convertible bonds will always sell at a premium.

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