Financial Assets at Amortized Cost

If the investment is measured at amortized cost, the transaction costs are

• amortized to profit or loss using the effective interest method

• recognized in profit or loss when the asset is derecognized or becomes impaired

• recognized in equity when the asset is derecognized or becomes impaired

• expensed immediately on acquisition date

Zoom Corporation purchased bonds at a discount in the open market as an investment. Assume that Zoom elects the fair value option. Zoom should account for these bonds at

• Cost.

• Amortized cost

• Fair value.

• Lower of cost or market.

Subsequent to initial recognition, debt instruments acquired to be held up to their maturity are measured at

• acquisition cost.

• acquisition cost plus amortization of a discount.

• acquisition cost plus amortization of a premium.

• fair value.

Solo Co. purchased ₱300,000 of bonds for ₱315,000. If Solo intends to hold the securities to maturity, the entry to record the investment includes

• a debit to Held-to-Maturity Securities at ₱300,000.

• a credit to Premium on Investments of ₱15,000.

• a debit to Investment in bonds at amortized cost of ₱315,000.

• none of these.

Subsequent changes in fair value of financial assets measured at amortized cost are

• recognized in profit or loss

• recognized in other comprehensive income

• recognized in equity

• not recognized

The rate appearing on the face of the bonds

• nominal rate

• stated rate

• coupon rate

• any of the choices

What is the effective interest rate of a bond or other debt instrument measured at amortized cost?

• The stated coupon rate of the debt instrument.

• The interest rate currently charged by the entity or by others for similar debt instruments (i.e., similar remaining maturity, cash flow pattern, currency, credit risk, collateral, and interest basis).

• The interest rate that exactly discounts estimated future cash payments or receipts through the expected life of the debt instrument or, when appropriate, a shorter period to the net carrying amount of the instrument.

• The basic, risk-free interest rate that is derived from observable government bond prices.

The rate used in computing interest income on debt instruments measured at amortized cost

• nominal rate

• effective interest rate

• face rate

• flat rate

If the cash paid on the purchase of bonds or if the cash proceeds received from the issuance of bonds is greater than the face amount of the bonds, there is

• premium

• discount

• bonds

• nothing

Which of the following statements is correct regarding term bonds classified at amortized cost acquired at a discount?

• the carrying amount of the bonds increases but amortization decreases each year

• the carrying amount of the bonds, interest income and amortization increase each year.

• only interest income and carrying amount of bonds increase each year

• only the carrying amount of the bonds increases each year