Exam 14: Time Value of Money

Chenard Company is about to issue $3,000,000 of 8-year bonds paying a 12% interest rate with interest payable semiannually. The discount rate for such securities is 10%. Below are time value of money factors that Chenard uses to calculate compounded interest. To the closest dollar, how much can Chenard expect to receive for the sale of these bonds?

Under the equity method, the Stock Investments account is credited when the

When investments in bonds are sold, any difference between the sales price and the fair value of the bonds is recorded as a gain or loss.

McComb Inc. earns $900,000 and pays cash dividends for $300,000 during 2014. SFX Corporation owns 70,000 of the 210,000 outstanding shares of McComb. What amount should SFX show in the investment account at December 31, 2014 if the beginning of the year balance in the account was $100,000?

Crosby Corporation sells 300 shares of common stock being held as an investment. The shares were acquired six months ago at a cost of $50 a share. Crosby sold the shares for $46 a share. The entry to record the sale is:

In accounting for stock investments of less than 20%, the equity method is typically used.

When the discount rate is equal to the contractual rate, the present value of the bonds will equal the bonds' face value.

The accounting for short-term debt investments and for long-term debt investments is similar.

The amount you must deposit now in your savings account paying 5% interest, in order to accumulate $15,000 for your first tuition payment when you start college in 3 years is

Hardin Park Company had these transactions pertaining to stock investments Feb. 1 Purchased 2,500 shares of Raley Company (10%) for $44,500 cash. June 1 Received cash dividends of $1 per share on Raley stock. Oct) 1 Sold 1,000 shares of Raley stock for $19,500. Dec) 1 Received cash dividends of $2 per share on Raley stock. The entry to record the receipt of the dividends Dec. 1 would include a

The formula for the future value of a single amount is p × (1 + i)/n.

In accordance with the historical cost principle, brokerage fees should be added to the cost of an investment.

Discounting may be done on an annual basis or over shorter periods of time such as semiannually.

Which of the following discount rates will produce the smallest present value?

(Ethics) High Country Stables, Inc., operates several dog-racing tracks throughout the United States. Since most facilities are outdoor tracks only, most of the cash receipts for High Country are received from April through October. These funds are usually invested in temporary, very liquid investments, such as stocks and bonds. Among the stocks purchased last year, was Vendable, Inc. a company specializing in automatic vending equipment. The company decided not to sell its Vendable stock at the end of last year, and has purchased more of the stock this year. The company intends to continue to purchase stock until it holds enough to make a takeover bid for the company. The accountants have been instructed to continue to classify the investment as temporary until the takeover is accomplished, so that less attention will be directed to it. (Presently, High Country has no long-term investment in stock at all.) Required: 1. Is it ethical for High Country to attempt to take over another company? Explain. 2. Is it ethical for High Country to leave its investment in the temporary investment category? Explain.

The account Fair Value Adjustment-Trading appears as a contra account in the income statement.

On January 1, 2014, the LaRoche Company purchased at face value, a $1,000, 4%, bond that pays interest on January 1 and July 1. LaRoche Company has a calendar year end. The entry for the receipt of interest on January 1, 2015 is

Assume that Os

If the cost method is used to account for an investment in common stock

An investment is readily marketable if it is management's intent to sell the investment.