Chang Corp

question 2

Multiple Choice

Chang Corp. purchased $1,000,000 of bonds at par value on April 1, 2014. The bonds pay interest at the rate of 10%. Chang intends to hold these bonds to maturity. Which of the following statements is false?

• A) Since the bonds were issued at par value, the cash interest will be the same as interest revenue.
• B) The bonds will earn $75,000 of interest by December 31, 2014.
• C)The bond investment must be accounted for using the fair value method.
• D)Since the bonds were classified as held-to-maturity, the company would not recognize unrealized gains or losses on the bonds during the period held by Chang.

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Definitions:

Historical Rates

Exchange rates that were in effect at the time of a past transaction or financial statement, used for translating foreign currency transactions and balances into the reporting currency.

Foreign Operations

Business activities that are conducted in countries other than the company’s home country, often involving different currencies and regulations.

Natural Hedge

A risk management strategy that involves offsetting risk by naturally balancing opposing positions in the business.