ACCTG 472 Flashcards
The price of a corporate bond is the present value of its face amount at the market or effective rate of interest:
Plus the present value of all future interest payments at the market rate
In a bond amortization table for bonds issued at a discount:
the total effective interest over the term to maturity is equal to the amount of the discount plus the total cash interest paid
On June 30, 2024, Mabry Corporation issued $5 million of its 8% bonds for $4.6 million. The bonds were priced to yield 10%. The bonds are dated June 30, 2024. Interest is payable semiannually on December 31 and July 1. If the effective interest method is used, by how much should the bond discount be reduced for the 6 months ended December 31, 2024?
$30,000
Bonds will sell at:
a premium if the stated rate exceeds the market rate
Haste Enterprises issues 15-year, $1,000,000 bonds that pay semiannual interest of $45,000. If the effective annual rate of interest is 11%, what is the issue price of the bonds? Some relevant and irrelevant present value factors:
*PV of ordinary annuity of $1: n = 15; i = 11% is 7.19087
*PV of $1: n = 15; i = 11% is 0.20900
*PV of ordinary annuity of $1: n = 30; i = 5.5% is 14.53375
*PV of $1: n = 30; i = 5.5% is 0.20064
$854,659
A bond issue with a face amount of $300,000 bears interest at the rate of 10%. The current market rate of interest is 12%. These bonds will sell at a price that is:
Less than $300,000
On January 31, 2024, B Corporation issued $650,000 face value, 11% bonds for $650,000 cash. The bonds are dated December 31, 2023, and mature on December 31, 2033. Interest will be paid semiannually on June 30 and December 31.
What amount of accrued interest payable should B report in its September 30, 2024, balance sheet?
$17,875
A company issued 10%, 20-year bonds with a face amount of $100 million. The market yield for bonds of similar risk and maturity is 6%. Interest is paid semiannually. At what price did the bonds sell?
Price of Bonds = $146,229,850
On May 1, 2024, Joe purchased $230,000 in zero-coupon bonds that mature on May 1, 2044. The bonds pay no interest during the period of time they are outstanding. The interest rate for such borrowings is at 9%. Interest compounds annually.
Bond value = $41,039
Owns less than 20% in investment
minimal influence
uses AFS or TS method
Owns 20% - 50% in investment
significant influence
Equity method
bond indenture
specific promises made to bondholders
debenture bond
back by faith in corporation
subordinated bond
not entitled to liquidation payments until others are paid
mortgage bond
backed by a lien on specific real estate
