MUHASEBE II

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. The correct answer is C.

Face value is the amount written on a debt security to be paid by issuer upon delivery at maturity date. 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. 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 premium7 . What determines whether it will be sold at par, at discount or at premium is usually the difference between the interest rate offered by security and the rate of return available in the market. The correct answer is C.

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 B.

When a company purchases a debt security with the aim of reselling for a higher price, this security is classified as trading security. The correct answer is D.

The investor company is called parent and the investee is subsidiary. The correct answer is B.

Derivatives are the contracts that provide payoffs to investors depending on the values of other assets that they are derived from. The correct answer is C.

The two most common types of derivative instruments are options and forwards or futures contracts. Investing in an option contract gives the investor the right, but not obligation, to buy or sell a predetermined quantity of financial instruments in future at a specified price. While a call option gives right to buy instruments, a put option provides the selling right. The correct answer is D.

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 E.

When a company invests in another corporation up to 20% of total outstanding shares, it is assumed that the investor company does not possess an important role in determination of company policies. In other words, this investment does not represent a managerial role in invested company. In this case, depending on the intention of management, the security can be reported either as tradingsecurity or available for sale security. The correct answer is E.

The correct answer is D. Companies may direct their idle or excess cash into either debt securities or equity securities, as the two main groups of investment alternatives. Debt securities are not a single investment alternative.

The correct answer to question is option A. Influential but noncontrolling and controlling are long term  investments.

Treasury bonds and corporate bonds are some of the examples of
debt securities. Common stocks and preferred stocks are some of the examples of equities securities.

When the investor company has both intention and ability to keep it until the maturity date, it is recorded as held-to-maturity.

The correct answer to question is option A. With regard to going concern assumption held-to-maturity securities include only debt securities because equity securities do not have a maturity.

The correct answer is C. The effective interest rate is the interest rate that makes the present value of all future cash receipts equal to the purchase price of security.

The correct answer is B. Securities are reported with their amortized costs in the financial statements instead of their fair (market) values. Because the amounts of premium or discount represent the difference between the face value and the purchase price. These amounts are amortized during the life of security (until maturity), so that the total initial profit or loss (difference between purchase price paid and face value to be received at the end) is allocated to each period.

The correct answer is C. Purchase returns account is a contra expense account. Others account is contra revenue account.

Trading securities are reported in current assets at fair value.

In an investment process, the investing party is called investor while invested company is called as investee.