4.2 BONDS

Question 1

Serial bonds

Answer 1

Serial bonds are bonds that mature in a series of installments.

Question 2

Debenture bonds

Answer 2

Debenture bonds are unsecured bonds.

Question 3

The market price of a bond, is equal to

Answer 3

The market price of a bond, is equal to the present value of the principal amount and the present value of all future interest payments (present value of all cash flows of the bond), irrespective of whether it is issued at a discount or a premium. The present value is always computed using the bond’s market (effective) rate of interest.

Question 4

Carrying value of the bond =

Answer 4

Carrying value of the bond = Face value + unamortized premium - Umamortized bond issue costs

Question 5

term bond

Answer 5

term bond single maturity date with entire principal maturing on a single date at the end of the term.

Question 6

variable rate BONDS

Answer 6

bonds with variable rate are floating rate bonds.

Question 7

Bond sinking fund

Answer 7

Bond sinking fund is treated as non-current asset (long-term investment) until bond matures. Investment account increases with any additional investments, interest income or dividends earned on investment and decreases with any costs incurred on such investment. The carrying amount of the bonds payable is not relevant to the balance of the sinking fund.