Question

6. You are an investor and have just purchased a bond on July 1 which pays interest every March 1 and September 1. When you receive your first interest cheque, you will receive and have earned how many months interest?

	Received	Earned
1	6	6
2	6	2
3	2	2
4	4	4

	Choice 1
	Choice 2
	Choice 3
	Choice 4

8. KR Corporation was involved in a lawsuit with the Government alleging inadequate air pollution control facilities at its Glowworm plant site during 2013. At December 31, 2016, it appeared probable the Government would settle for approximately $150,000. This event should be recorded (i.e., recognized) in 2016 as a(n):

	Unusual gain.
	Prior period adjustment.
	Disclosure of contingency loss only in a note.
	Loss on the lawsuit (operating expense).

10. Bond A and Bond B both have a maturity value of $1,000 and pay annual interest of 9%. The market rate of interest is also 9%. Bond A matures in 4 years and Bond B matures in 5 years. Which of the following is correct?

	Both bonds sell for more than $1,000.
	Both bonds sell for the same amount, $1,000.
	Bond A will sell for more than Bond B.
	Bond B will sell for more than Bond A.

Answer 1

Answers:

6) Choice 3 is right - Received in 2 months (Jul 1 to Sep 1) and earned interest for 2 months (Jul 1 to Sep 1)
8) KR Corporation should disclose the probable lawsuit amount as a contingency loss only in the note, hence Option C is correct.
10) Bond B with a longer maturity date than Bond A, will sell for a lower price than Bond A, keeping other factors constant (Interest rate of 9%, maturity value of $1,000) because of interest rate risk and credit risk, hence Option C - Bond A will sell for more than Bond B is the correct answer.