Question

1.The sale of a long−term investment would appear on a cash flow statement as​ a:

A.cash outflow in the investing activities section

B.cash inflow in the financing activities section

C.cash inflow in the operating activities section

D.cash inflow in the investing activities section

2.On March​ 1, 2017, Uncontracted Capacity Company​ (UCC) purchased​ $20,000 of Utility Service​ Corporation's 9% bonds at a purchase price of 90. Uncontracted Capacity​ Company, whose year end is December​ 31, expects to hold the bonds until their maturity date 5 years from the date of purchase. Interest on the bonds will be paid every March 1 and September 1 until maturity. Assuming that UCC is a private corporation that elects to amortize premium or discounts using straight−line ​amortization, how much total interest revenue will be recorded by UCC on September​ 1, 2017?

A.$1,200

B.​$900

C.$1,100

D.$800

3.When a premium on a bond investment is amortized by the company holding the​ investment:

A.the amount of cash received as an interest payment will be reduced

B.companies normally credit a separate account called Premium on Investments

C.Interest Revenue will be debited

D.the amount of cash received as an interest payment will be increased

Answer 1

1. Answer: D.cash inflow in the investing activities section

Explanation:

Long-term investment is come under investing activity.

There is an inflow of cash from the sale of Investments.

Therefore, Sale of long-term investments is come under 'Cash inflow in the investing activities section.

Thus, Option D is correct and remaining options are incorrect.

2. Answer: C.$1,100

Calculations:

Under straight-line method,

Face value of the bonds	$20,000
Less: Issue price of the bonds [$20,000 x 0.90]	$18,000
Discont on bonds receivable	$2,000
÷ Number of periods [5 years x 2]	10
= Discount amortized for each period	$200
Add: Interest receipt [$20,000 x 9% x (6/12)]	$900
Interest revenue for each period	$1,100

Thus, total interest revenue will be recorded by UCC on September​ 1, 2017 is $1,100

3. Answer:A.the amount of cash received as an interest payment will be reduced

Explanation:

Issued at premium:

If the amount of cash received as an interest payment will be reduced

Issued at discount:

If the amount of cash received as an interest payment will be increased

Issued at par:

If the amount of cash received as an interest payment will be neither increased nor decreased