002 Bond Accounting Principles Flashcards
Define “bond.”
A financial debt instrument that typically calls for the payment of periodic interest (although a zero-coupon bond pays no interest), with the principal being due at some time in the future.
Define “bond date.”
The first possible issuance date.
Define “issuance date.”
The date the bonds are actually issued.
Define “maturity date.”
The date the maturity value is paid, the end of the bond term.
Define “secured bonds.”
Bonds that have a claim to specific assets.
Define “serial bonds.”
Bonds that mature at regular or staggered intervals.
When are bonds sold at a premium?
When stated rate > market rate.
When are bonds sold at a discount?
When stated rate < market rate.
What method is required for premium/discount amortization?
Effective interest method.
Describe three general aspects about the valuation of all long-term liabilities.
1 Initially recorded at the present value of future cash flows;
2 Interest and amortization are recognized at the market interest rate the date the liability was established;
3 Interest expense equals the liability balance at the beginning of the period times the market rate of interest the date the liability was recorded.
Define Term Bond
Bond issues that mature on a single date
Define Warrant
A security that gives the holder the right to purchase shares of common stock in accordance with the term of the instrument, usually upon payment of a specified amount.
Present Value
The amount you would pay now for an amount to be received “n” period in the future given an interest rate of “i”
Present Value of Annuity
The value today, given a discount rate of a series of future payments.
