Investment Quiz Questions And Answers

On October 1, 2009, York Company purchased 4,000 of the P1,000 face value, 10% bonds of Dell Company for P4,400,00 which includes accrued interest of P100,000. The bonds, which mature on January 1, 2016, pay interest semiannually on January 1 and July 1. York uses the straight-line method of amortization and appropriately records the bonds as a long-term investment. The bonds should be shown on York's December 31, 2009 balance sheet at:

On October 1, 2008, Pentel Company purchased 6,000 of the P1,000 face value, 10% bonds of Ophra Company for P6,600,000 including accrued interest of P150,000. The bonds, which mature on January 1, 2015, pay interest semiannually on January 1 and July 1. Pentel used the straight-line method of amortization and appropriately recorded the bonds as long-term investments. On Pentel's December 31, 2009 balance sheet, the bonds should be reported at:

On April 1, 2009, Sailor Company purchased P2,000,000 face value, 9%, Treasury Notes for P1,985,000, including accrued interest of P45,000. The notes mature on July 1, 2010, and pay interest semiannually on January 1 and July 1. Sailor uses the straight-line method of amortization. In its October 31, 2009 balance sheet, the carrying amount of this investment should be:

On July 1, 2009, Hillary Company purchased Esau Company's ten-year 12% bonds as a long-term investment, with a face value of P5,000,000 for P4,760,000. Interest is payable semiannually on January 1 and July 1. The bonds matured on July 1, 2013. Hillary uses the straight-line method of amortization. What amount of interest income should Hillary report in its income statement for the year ended December 31, 2009?

On January 1, 2009, Cart Company purchased Fae Company 9% bonds with a face amount of P4,000,000 for P3,756,000 to yield 10%. The bonds are dated January 1, 2009, mature on December 31, 2018, and pay interest annually on December 31. The cart uses the interest method of amortizing bond discount. In its income statement for the year ended December 31, 2009, what total amount should Cart report as interest revenue from the long-term bond investment?

On January 1, 2009, Den Company purchased ten-year bonds with a face value of P1,000,000 and a stated interest rate of 8% per year, payable semiannually on July 1 and January 1. The bonds were acquired to yield 10%. Present value factors are as follows:Present value of 1 for 10 periods at 10%                                                        .386Present value of 1 for 20 periods at 5%                                                          .377Present value of an annuity of 1 for 10 periods at 10%                                 6.145Present value of an annuity of 1 for 20 periods at 5%                                 12.462The purchase price of the bonds is:

On January 1, 2009, Russo Company purchased 5-year bonds with a face value of P8,000,000 and stated interest of 10% per year, payable semiannually on January 1 and July 1. The bonds were acquired to yield 8%. Present value factors are:Present value of an annuity of 1 for 1 period at 5% 7.72Present value of an annuity of 1 for 10 periods at 4% 8.11Present value of 1 for 10 periods at 4% 0.6756What is the purchase price of the bonds?

On January 1, 2009, Riyadh Company purchased serial bonds with the face value of P3,000,000 and stated 12% interest payable annually every December 31. The bonds mature at an annual installment of P1,000,000 every December 31. The rounded present value of 1 at 10% for:                   One period                                              0.91                                Two periods                                            0.83                   Three periods                                          0.75What was the market price of the serial bonds on January 1, 2009?

On January 1, 2009, Cameron Company purchased bonds with the face value of P5,000,000 at the cost of P4,700,000. The stated interest is 10% payable annually every December 31. The bonds mature in 4 years or January 1, 2011.How much interest income should be reported by Cameron Company for the year ended December 31, 2009, using the effective interest method?

On January 1, 2009, Camelot Company established a sinking fund in connection with its issue of bonds due in 2014. A bank was appointed as an independent trustee of the fund. On December 31, 2009, the trustee held P364,000 cash in the sinking fund account representing P300,000 in annual deposits. How should the sinking fund be reported in Camelot's balance sheet on December 31, 2009? 

On January 1, 2009, Man Company adopted a plan to accumulate P5,000,000 by January 1, 2014. Man plans to make 5 equal annual deposits that will earn interest at 9% compounded annually. Man-made the first deposit on December 31, 2009. The future value of an ordinary annuity of 1 at 9% for 5 periods is 6.52. What amount must be deposited annually at the compound interest to accumulate the desired amount of P5,000,000?

Cebuana Company made an investment of P5,000,000 at 10% per annum compounded annually for 6 years. What is the amount of the investment on the date of maturity? Round off future value factor to two decimal places.

Mac Company made investment for 5 years at 12% per annum compounded semiannually to equal P7,160,000 on the date of maturity. What amount must be deposited now at the compound interest to provide the desired sum? Round off future value factor to two decimal places.

Bulk Company purchased a P1,000,000 ordinary life insurance policy on its president. The policy year and Bulk's accounting year coincide. Additional data are available for the year ended December 31, 2009:Cash surrender value, 1/1                                                           43,500Cash surrender value, 12/31                                                        54,000Annual advance premium paid 1/1                                             20,000Dividend received 7/1                                                                   3,000Bulk Company is the beneficiary under the life insurance policy. How much should Bulk report as a life insurance expense for 2009?

Crane Company purchased a P1,000,000 life insurance policy on its president, of which Crane is the beneficiary. Information regarding the policy for the year ended December 31, 2009, follows:Cash surrender value, 1/1 87,000Cash surrender value, 12/31 108,000Annual advance premium paid 1/1 40,000During 2009, the dividend of P6,000 was applied to increase the cash surrender value of the policy. What amount should Crane report as a life insurance expense for 2009? 

On January 1, 2009, Tree Company borrowed P5,000,000 from a bank at a variable rate of interest for 4 years. Interest will be paid annually to the bank on December 31, and the principal was due on December 31, 2012. Under the agreement, the market rate of interest every January 1 resets the variable rate for that period and the amount of interest to be paid on December 31. In conjunction with the loan, Tree Company entered into a "receive a variable, pay fixed" interest rate swap agreement with another bank speculator.The interest rate swap agreement was designated as a cash flow hedge. The market rates of interest are:January 1, 2009                                                    10%January 1, 2010                                                    14%January 1, 2011                                                    12%January 1, 2012                                                    11%The present value of an ordinary annuity of 1 is as follows:At 14% for three periods                                      2.32At 12% for two periods                                        1.69At 11% for one period                                          0.90What is the derivative asset or liability on December 31, 2009?

On January 1, 2009, Tree Company borrowed P5,000,000 from a bank at a variable rate of interest for 4 years. Interest will be paid annually to the bank on December 31, and the principal was due on December 31, 2012. Under the agreement, the market rate of interest every January 1 resets the variable rate for that period and the amount of interest to be paid on December 31. In conjunction with the loan, Tree Company entered into a "receive a variable, pay fixed" interest rate swap agreement with another bank speculator.The interest rate swap agreement was designated as a cash flow hedge. The market rates of interest are:January 1, 2009                                                    10%January 1, 2010                                                    14%January 1, 2011                                                    12%January 1, 2012                                                    11%The present value of an ordinary annuity of 1 is as follows:At 14% for three periods                                      2.32At 12% for two periods                                        1.69At 11% for one period                                          0.90What is the derivative asset or liability on December 31, 2010?

On January 1, 2009, Tree Company borrowed P5,000,000 from a bank at a variable rate of interest for 4 years. Interest will be paid annually to the bank on December 31, and the principal was due on December 31, 2012. Under the agreement, the market rate of interest every January 1 resets the variable rate for that period and the amount of interest to be paid on December 31. In conjunction with the loan, Tree Company entered into a "receive a variable, pay fixed" interest rate swap agreement with another bank speculator.The interest rate swap agreement was designated as a cash flow hedge. The market rates of interest are:January 1, 2009                                                    10%January 1, 2010                                                    14%January 1, 2011                                                    12%January 1, 2012                                                    11%The present value of an ordinary annuity of 1 is as follows:At 14% for three periods                                      2.32At 12% for two periods                                        1.69At 11% for one period                                          0.90What is the derivative asset or liability on December 31, 2011?

Vacation Company is a golf course developer that constructs approximately 5 courses each year. On January 1, 2009, Vacation Company agreed to buy 5,000 trees on January 1, 2010, to be planted in the courses it intends to build. In recent years, the price of trees has fluctuated wildly. On January 1, 2009, Vacation Company entered into a forward contract with a reputable bank. The price is set at P500 per tree.The derivative forward contract provides that if the market price on January 1, 2010, is more than P500, the difference is paid by the bank to Vacation. On the other hand, if the market price is less than P500, Vacation will pay the difference to the bank. This derivative forward contract was designated as a cash flow hedge. The market price on December 31, 2009, and January 1, 2010, is P800. The appropriate discount rate is 8%, and the present value of 1 at 8% for one period is .926.On December 31, 2009, Vacation Company shall recognize a derivative asset at:

Congo Grill operates a chain of seafood restaurants. On January 1, 2009, Congo Grill determined that it would need to purchase 100,000 kilos of tuna fish on January 1 2010. Because of the volatile fluctuation in the price of tuna fish, on January 1, 2009, Congo negotiated a forward contract with a reputable financial institution for Congo Grill to purchase 100,000 kilos of tuna fish on January 1, 2010, at a price of P8,000,000 of P80 per kilo. This forward contract was designated as a cash flow hedge.On December 31, 2009, and January 1, 2010, the market price of tuna fish per kilo is P75. The appropriate discount rate is 6%, and the present value of 1 at 6% for one period is .943. Congo Grill uses the perpetual system.Congo Grill shall recognize a derivative liability on December 31, 2007, at: