Chapter 16 Conceptual Questions

Companies determine the cost of​ held-to-maturity debt securities as the present value of the future cash​ flows, discounted at the stated rate of interest.

False (HTM)

A company reports unrealized gains or losses from trading debt securities in other comprehensive income.

False (Unrealized)

If a debt security is not classified as​ held-to-maturity or​ trading, then it is classified as an​ available-for-sale security.

True (Debt Security)

Bonds are priced in the market so that their​ ________ is the same as the market rate of interest.

Yield

Under the equity method of accounting for​ investments, dividends received from the investee are credited to Dividend Revenue for the investor.

False (equity)

When should a company use the equity method to account for an investment in another​ company's common​ stock?

The investor exerts significant influence over the investee.

If the stated interest rate of a note is higher than the prevailing market​ rate, a resulting discount on notes receivable will be recorded.

False (market rate)

Which of the following statements is correct about the fair value option under​ IFRS?

IFRS does not allow fair value reporting for investments under the equity method.

If a company elects the fair value option to account for equity​ securities, what will be recorded differently when there is no significant​ influence?

There is no difference in accounting for equity securities with no significant influence as these are already accounted for using the fair value method.

Which of the following would not be disclosed for​ held-to-maturity securities?

gross realized gains and losses

Which of the following must be disclosed for​ held-to-maturity securities?

net carrying amount