MUHASEBE II

The security that represents a credit relationship with another entity upon issuance is called debt security. By investing in a debt security issued by another enterprise, a company plays the creditor role in the market. Treasury bonds, corporate bonds, convertible debt instruments are some of the examples of debt securities. The correct answer is B.

The security that represents a credit relationship with another entity upon issuance is called debt security. By investing in a debt security issued by another enterprise, a company plays the creditor role in the market. Treasury bonds, corporate bonds, convertible debt instruments are some of the examples of debt securities. The correct answer is B.

However, a company may also invest in the other companies for the purpose of partnering with or controlling them in the long-term. Longterm investments often involve the purchase of a significant portion of the equity securities of another company. Such investments usually have a strategic purpose, such as reduction of costs, expansion, or integration etc.. The correct answer is E.

• Trading securities are debt or equity securities bought and held principally for the purpose of being sold in the near term to generate income on short-term price differences.

• Available-for-sale securities are debt or equity securities that do not meet the criteria for either trading or held-to-maturity securities. They are held with the intent of selling them sometime in the future. Therefore, they may be short-term or long-term depending on what management intends to do with them.

• Held-to-maturity securities are debt securities that the investor has an intend and ability to hold until their maturity date.

The correct answer is D.

Face value is the amount written on a debt security to be paid by issuer upon delivery at maturity date. The correct answer is D.

If the price paid for security is equal to the face value, then the security is told to be sold at par. However, the purchase price generally differs from face value. If the security is sold at a price below the face value, it is sold at a discount. On the other hand, if the price exceeds the face value, security is sold at a premium. The correct answer is A.

If the price paid for security is equal to the face value, then the security is told to be sold at par. The correct answer is C.

A security that offers an interest rate, which is higher than the market return, is sold at premium; whereas lower-than-market interest rate requires a discounted price for the security to be sold. The correct answer is C.

Companies may invest in other in the shares of the other companies’ shares at such a percentage that is enough to join policy determination process but not to control the entity. Generally, it is assumed that having at least 20% of the shares of a company gives an investor the right and power to participate in policy determination process; however, some possible exceptional situations may exist. The correct answer is E.

Another option for companies to invest their excess funds in is equity securities. Equity securities are the instruments representing the ownership interest in an entity, such as common stocks, preferred stocks, etc. The initial value of security to record in balance sheet includes purchase price and other incidental expenditures such as brokerage commission and taxes. However, the subsequent accounting treatment for equity investment changes depending on the rate of ownership and influence acquired by investor on investee. The correct answer is B.

Fair Value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The correct answer is A.

Available for sale securities are measured with their fair values. Any change in value is reflected in balance sheets with the help of unrealized holding gain or loss accounts. The correct answer is B.

Ownership Percentage is between 20% and 50% “Affiliate”. The correct answer is C.

Held-to-maturity securities are recorded using the amortized cost instead of fair values. Therefore, there is no holding gain or loss to recognize in financial statements. The correct answer is D.

Cost of Share: Purchase price (5,000 shares x 2.00 TL) + Other Purchase related Fees (350 TL). Therefore, 

Debit: Available for Sale Securities (Common Stock) - 10,350

Credit: Cash - 10,350

The correct answer is E.

Income statement of AOF Corp. (investee) represents 250,000 TL net income for 2019, meaning an increase in equity by 250,000 TL. Since Anadolu Co. owns 20% of AOF Corp., the value of affiliate account in balance sheet of Anadolu Co. has also increased by 50,000 TL (20% x 250,000 TL). Then, the required entry is:

Debit: Affiliates - 30,000

Credit: Revenue from Affiliates - 30,000

If the price exceeds the face value, security is sold at a premium. The correct answer B.

When the investor buys more than 50% of total shares of investee, the accounting treatment is consolidation. The correct answer is E.

While a call option gives right to buy instruments, a put option provides the selling right. The correct answer is B.

The primary objective of temporary investments is to:
1. earn interest revenue.
2. receive dividends.
3. realize gains from increases in the market price of the securities.

The correct answer is E.