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Question 1

how is the effective int. method used for a bond discount amortization table? premium?

Answer 1

(1st) have int pmt/payable and int exp columns
(2nd) get the CV BB
(3rd) int pmt - int exp = amort
(4th) amort + CV = new CV

…repeat, but use new CV to calculate for ongoing int. exp

*int pmt is fixed to stated rate * face amt

**add amort to CV if discount, and subtract if premium

Question 2

the types of risks and uncertainties discussed in FASB ASC 275 are: (3)

Answer 2

• nature of the entity’s op’s
• use of est’s in prep of FS’s
• sig. conc’s in certain aspects of entity’s op’s

Question 3

a foreign sub of a US parent co. should measure its A, L, and op’s using:

Answer 3

the sub’s functional currency

Question 4

what element is ID’d as important in det’ing matters that are sig. to a specific entity in FASB ASC 275 “risks and uncertainties”?

Answer 4

selectivity (screening)

Question 5

what is the JE for par value method?

Answer 5

issuance:
Cash   300
       APIC (par)   100
          CS (par)   200
repurch:
TS (CS par)  50
  APIC (par)   25
     RE (plug)  10
                cash   85
reissue:
cash   100
APIC (plug)    50
 TS (CS par)   50

Question 6

what tax rate is used to calculate ITE for interim reports?

Answer 6

current-year effective tax rate

Question 7

how is G/L from settlement of a lawsuit reported on the IS?

Answer 7

it is included in the income from cont. op’s

Question 8

what is GAAP interest compared to stated interest?

Answer 8

• GAAP int = CV int exp / CV BB

* stated int = face int exp / face

Question 9

what is the JE when issuing a bond at a discount?

Answer 9

Dr: Cash 49
Dr: discount B/P 1
Cr: B/P 50

*B/P amt never changes; discounts are a Dr and premiums are Cr

Question 10

define debenture, serial, term, variable rate and sinking fund bonds

Answer 10

• debenture = unsecored corp. bonds
• serial = mature in installments
• term = singled fixed maturity date
• variable rate = int rates that change
• sinking fund = co. contr’s cash to each period for it to have enough to pay at maturity

Question 11

how do you calculate the net CV of a bond liability?

Answer 11

face +/- prem/disc + accrued interest - bond issuance costs

*bond issue costs are netted against premiums and added towards the discount

Question 12

what are bond issuance costs?

Answer 12

*bond issuance costs are legal, acct, underwriting, promotional costs and printing fees

**they are also amort’d as int exp over life of bond using effective int method

Question 13

how are proceeds (market price of bond) from bond calc’d?

Answer 13

• using the market rate of int

* PV “P” + PVOA I/P = proceeds from bond

Question 14

when is the SL method allowed?

Answer 14

SL is not GAAP, but allowed if result is not materially different

*SL is prohibited under IFRS

Question 15

when is bond interest expense recog’d?

Answer 15

from bond issuance date through fiscal YE

Question 16

how is CV of investment calc’d?

Answer 16

CV = PP of invest + amort. of discount - amort. of premium

Question 17

is the amort. of a discount of a note considered int. exp?

Answer 17

yes - when a disc. on a bond/note is amort’d, the discount amort. increases int. exp. for the period

Question 18

what happens when stated rate of int. is less than effective rate? greater than?

Answer 18

• less than = issued at discount and the amort. will increase int. exp. so it exceeds int. pmt
• greater than = issued at premium and the amort. will decrease int. exp. so int pmt exceeds int exp

Question 19

what is the JE for int exp and amort of bond disc?

Answer 19

Dr: int exp
Cr: amort of bond disc.
Cr: cash (I/P)

Question 20

what are the effects of amortizing discount and premium for a B/P?

Answer 20

• amortize discount = increase CV

* amortize premium = decrease CV