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CPA FAR > Bond Debt Restructure > Flashcards

Bond Debt Restructure Flashcards

1
Q

What is a serial bond?

A

Any bond that matures in installments

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1
Q

What is a serial bond?

A

Any bond that matures in installments

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2
Q

What is a term bond?

A

Any bond that matures on a single date

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2
Q

What is a term bond?

A

Any bond that matures on a single date

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3
Q

What is a debenture bond?

A

A bond not secured by any collateral

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3
Q

What is a debenture bond?

A

A bond not secured by any collateral

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4
Q

What is a sinking fund bond?

A

Cash is held in a sinking fund for repayment of bond at maturity 5 years of requirements and maturity details should be disclosed

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4
Q

What is a sinking fund bond?

A

Cash is held in a sinking fund for repayment of bond at maturity 5 years of requirements and maturity details should be disclosed

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5
Q

What is the formula to calculate proceeds of a bond sale?

A

Present Value of the principal payment at maturity + Present Value of Interest Payments made : Market Value of Bond Proceeds

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5
Q

What is the formula to calculate proceeds of a bond sale?

A

Present Value of the principal payment at maturity + Present Value of Interest Payments made : Market Value of Bond Proceeds

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6
Q

How is the present value of a bond calculated?

A

Step 1: PV of $1 @ Yield Rate (not Stated Rate) x Bond Face Value PLUS Step 2: PV of an Ordinary Annuity of $1 for Term @Yield x (Stated Rate x Face)

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6
Q

How is the present value of a bond calculated?

A

Step 1: PV of $1 @ Yield Rate (not Stated Rate) x Bond Face Value PLUS Step 2: PV of an Ordinary Annuity of $1 for Term @Yield x (Stated Rate x Face)

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7
Q

Which costs are included in bond issuance costs? How are they recorded?

A

Include Engraving; Printing; Legal; Underwriter; Registration Debited to a deferred charge account and amortized over life of Bond using S/L Bond Proceeds - Bond Issuance Costs : Net Bond Proceeds Time of amortization begins when issued

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7
Q

Which costs are included in bond issuance costs? How are they recorded?

A

Include Engraving; Printing; Legal; Underwriter; Registration Debited to a deferred charge account and amortized over life of Bond using S/L Bond Proceeds - Bond Issuance Costs : Net Bond Proceeds Time of amortization begins when issued

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8
Q

How are bonds reported when classified as trading securities?

A

Reported at FMV with unreleased gains and losses being included in earnings

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8
Q

How are bonds reported when classified as trading securities?

A

Reported at FMV with unreleased gains and losses being included in earnings

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9
Q

How are bonds amortized under the interest method?

A

Both discount and premium amortization amounts increase each year

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9
Q

How are bonds amortized under the interest method?

A

Both discount and premium amortization amounts increase each year

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10
Q

Describe the book value method when converting from bonds to stocks.

A

No gain or loss recognized APIC is the plug for the difference between the Bond’s Book Value and the Par Value of the Common Stock

10
Q

Describe the book value method when converting from bonds to stocks.

A

No gain or loss recognized APIC is the plug for the difference between the Bond’s Book Value and the Par Value of the Common Stock

11
Q

What is the stated rate for a bond?

A

Rate on the face of the bond

11
Q

What is the stated rate for a bond?

A

Rate on the face of the bond

12
Q

What is the market rate on a bond?

A

Rate that bonds are currently selling for

12
Q

What is the market rate on a bond?

A

Rate that bonds are currently selling for

13
Q

What happens when the bond’s market rate is greater than the stated rate?

A

Bond will need to sell at a discount in order for buyers to be interested. The difference in market rate vs. the stated is made up by the buyer purchasing the bond for less than par value

13
Q

What happens when the bond’s market rate is greater than the stated rate?

A

Bond will need to sell at a discount in order for buyers to be interested. The difference in market rate vs. the stated is made up by the buyer purchasing the bond for less than par value

14
Q

What happens when a bond’s market rate is less than the stated rate?

A

Bond will need to sell at a premium in order for buyers to be interested. The difference in market rate vs. the stated is made up by the buyer purchasing the bond for more than par value

14
Q

What happens when a bond’s market rate is less than the stated rate?

A

Bond will need to sell at a premium in order for buyers to be interested. The difference in market rate vs. the stated is made up by the buyer purchasing the bond for more than par value

15
Q

How does accrued interest on a bond affect the purchase price?

A

The total cash that seller receives will be MORE than they normally would (set aside any considerations for premium or discount; they are irrelevant for this point). Basically; the purchaser of the bonds must give the bond issuer the amount of accrued interest up front.

15
Q

How does accrued interest on a bond affect the purchase price?

A

The total cash that seller receives will be MORE than they normally would (set aside any considerations for premium or discount; they are irrelevant for this point). Basically; the purchaser of the bonds must give the bond issuer the amount of accrued interest up front.

16
Q

When does interest expense start accruing on a bond?

A

When the bonds are issued

16
Q

When does interest expense start accruing on a bond?

A

When the bonds are issued

17
Q

How is an interest payment on a bond calculated?

A

Cash for payment : Stated rate x Face amount

17
Q

How is an interest payment on a bond calculated?

A

Cash for payment : Stated rate x Face amount

18
Q

What amount of interest is expensed on a bond interest payment?

A

Interest expense : effective yield x carrying value Any difference between expense and cash payment is applied as amortization against premium/discount

18
Q

What amount of interest is expensed on a bond interest payment?

A

Interest expense : effective yield x carrying value Any difference between expense and cash payment is applied as amortization against premium/discount

19
Q

What are convertible bonds? Which recording method is used?

A

Bonds that can be converted to stock Book value method used if no gain or loss Market value method used if there is a gain or loss

19
Q

What are convertible bonds? Which recording method is used?

A

Bonds that can be converted to stock Book value method used if no gain or loss Market value method used if there is a gain or loss

20
Q

How is the retirement of bonds recorded?

A

Gain or Loss is Ordinary Extraordinary if both unusual and infrequent

20
Q

How is the retirement of bonds recorded?

A

Gain or Loss is Ordinary Extraordinary if both unusual and infrequent

21
Q

When is a gain recognized in a debt restructuring?

A

If terms are modified; and future payments are now less than the carrying amount of the debt; then a Gain is recognized

21
Q

When is a gain recognized in a debt restructuring?

A

If terms are modified; and future payments are now less than the carrying amount of the debt; then a Gain is recognized

22
Q

What is the gain recognized under a settlement of debt?

A

Gain recognized: Difference between cash paid and carrying amount of debt Difference between non-cash asset given and re-valued at FMV and debt carrying amount

22
Q

What is the gain recognized under a settlement of debt?

A

Gain recognized: Difference between cash paid and carrying amount of debt Difference between non-cash asset given and re-valued at FMV and debt carrying amount

23
Q

For a creditor; how is a loan impairment recorded?

A

If future cash flows discounted at loan’s Effective Interest Rate are less than Carrying Value: Effective Rate calculated using original rate; not modified rate

23
Q

For a creditor; how is a loan impairment recorded?

A

If future cash flows discounted at loan’s Effective Interest Rate are less than Carrying Value: Effective Rate calculated using original rate; not modified rate

CPA FAR (18 decks)

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