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Exam 8: Investments

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Question 91

Multiple Choice

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Even if it is riskier to issue debt, most companies still choose to do this because

A) money that is borrowed increases earnings per share.
B) it produces a higher return on equity.
C) it does not affect shareholder control.
D) all of the above are correct.

E) None of the above
F) B) and D)

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Question 92

Multiple Choice

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If a corporation issued $ 4,000,000 in bonds that pay 5% annual interest, what is the annual net cash cost of this borrowing if the income tax rate is 30%?

A) $ 2,000,000
B) $ 60,000
C) $ 200,000
D) $ 140,000

E) None of the above
F) B) and D)

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Question 93

Multiple Choice

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With both types of instalment notes payable, the reduction in principal for the next year must be reported as

The current market value of the bond is equal to the future value of all the present cash flows.

The present value of a $ 10,000, 5-year bond, will be less than $ 10,000 if the

Companies reporting under IFRS will report all investments in debt instruments at amortized cost.

Which of the following is a true statement regarding an investment in short-term debt instruments?

Under IFRS, if the present value of the lease payments amounts to substantially all of the fair value of the leased property, the lease will be classified as an operating lease.

Which of the following would NOT normally be considered a motive for making an equity investment in another corporation?

The contractual interest rate and the market interest rate on a bond will always be equal.

When equity is issued, shareholder control is not affected.

Under IFRS, investments reported at fair value may include investments in common shares, preferred shares, and debt investments.

Under ASPE, a lease is generally classified as a capital lease if the lease term is equal to ______ or more of the economic life of the leased property.

Under IFRS, a strategic investment, in which the company does NOT exercise significant influence, may report any holding gains or losses from changes in the fair value, as other comprehensive income.

Under IFRS, the

The advantage of using fair value for investments held for trading is that it allows users to better predict future cash flows.

On January 1, Wendy Welding Ltd. purchases a $ 100,000 150 day treasury bill for $ 97,560. The treasury bills are trading at a market rate of interest of 6% annually. The entry to record the investment is

For each item listed below determine if it is a non-strategic investment (NS) or a strategic investment (S).

One of the differences between notes payable and bonds payable is that most notes are payable in a series of periodic payments, while bonds are normally repayable in full at maturity.

Investments in equity securities bought for the purposes of trading are reported at amortized cost.