1 Landmark Corp buys 300000 of Schroeter Companys 8 fiveyear

1. Landmark Corp. buys $300,000 of Schroeter Company\'s 8% five-year bonds at par value on September 1. Interest payments are made semiannually. All of the following regarding accounting for the securities are true except:

The debt securities should be recorded at the cost $300,000.

The securities will have a maturity value of $300,000.

The semiannual interest payment amount is $12,000.

The semiannual interest payment amount is $24,000.

Interest Revenue should be credited when an interest payment is received.

2. A cash equivalent is:

An investment readily convertible to a known amount of cash.

Close to its maturity date but its market value may still be affected by interest rate changes.

Generally is within 12 months of its maturity date.

Is not considered highly liquid.

Another name for cash.

3. A company reported that its bonds with a par value of $50,000 and a carrying value of $57,000 are retired for $60,000 cash, resulting in a loss of $3,000. The amount to be reported under cash flows from financing activities is:

($3,000).

$60,000.

($57,000).

$7,000.

($7,000).

Solution

1. Answer should be \'The semiannual interest payment amount is $24,000\' since this is the false statement as the semianual intrest amount paid is 8*300000/2*100 = 12000$

2. A cash equivalent is: An investment readily convertible to a known amount of cash.

3. $60,000 cash inflow is to be reported under financing activities, so the answer is B but without the brackets, cos it\'s an inflow, not an outflow.