Conyers Bank Holds Treasury Bonds with a Book Value of $30

question 195

Multiple Choice

Conyers Bank holds Treasury bonds with a book value of $30 million. However, the Treasury bonds currently are worth $28,387,500. The bank's portfolio manager wants to shorten asset maturities. Which of the following statements is true?

• A)The portfolio manager is reluctant to sell the bonds outright since the bank will have to take a loss.
• B)The portfolio manager is willing to sell the bonds outright since they are not as valuable as their book value.
• C)The portfolio manager is willing to sell the bonds outright since they are more valuable than their book value.
• D)The portfolio manager is reluctant to sell the bonds outright since the bank will have to pay taxes on the gain.
• E)None of these.

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Definitions:

Conversion

In accounting, it refers to the process of changing raw materials into finished products, including the costs associated with such a transformation.

Weighted-Average Method

An inventory costing method that calculates the cost of units for sale during a period by averaging the costs of all similar goods available.

Equivalent Units

A concept used in cost accounting to standardize the amounts of work done on incomplete units, to fully completed units, thereby enabling a consistent cost analysis.

Overhead Allocation

The process of assigning indirect costs of production, such as utilities and rent, to specific cost objects like products or departments.