Which of the Following Statements Is True Regarding the Differences

question 45

Multiple Choice

Which of the following statements is true regarding the differences between amortized cost and fair value for debt investments?

• A)When bonds sold at a discount and are accounted for using amortized cost, interest revenue will be greater than the interest revenue recorded under fair value.
• B)When bonds sold at a premium and are accounted for using amortized cost, interest revenue will be less than the interest revenue recorded under fair value.
• C)Under the fair value approach, an unrealized gain or loss is recorded in each year whereas no unrealized gains or losses are recorded under the amortized cost method.
• D)All of these answer choices are correct.

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Definitions:

Constructive Receipt

The tax principle that income is taxed when it is actually or constructively received, not necessarily when it is earned.

Control

The ability or authority to guide or manage operations, decisions, and policies of a business or project.

Income

Earnings received by an individual or entity, including wages, salaries, investments, and other forms of compensation, which are subject to tax.

Schedule B

A section of IRS tax forms for reporting interest and dividend income.