Bond - Simulations Flashcards

1
Q

Journal Entry for the issuance of a discounted bond

A

Dr. Cash - Calculated value
Dr. Discount on bonds payable - Plug
Cr. Bonds payable - Face value

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2
Q

Journal Entry for issuance of a premium bond

A

Dr. Cash - Calculated amount
Cr. Premium on bonds payable - Plug
Cr. Bonds payable - Face value

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3
Q

Difference in market rate between bond discount and premium

A
  1. If market rate is higher than the stated rate then you have a discount & interest expense is more than cash amount
  2. If market rate is less than the stated rate then you have a premium & interest expense is less than cash amount
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4
Q

Journal entry for amortization of a bond discount

A

Dr. Interest Expense - Calculated amount * market rate
Cr. Discount on bonds payable
Cr. Cash - Face value * stated rate

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5
Q

Journal entry for amortization of a bond premium

A

Dr. Interest expense - Calculated amount * market rate
Dr. Premium on bonds payable
Cr. Cash - Face value * stated rate

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6
Q

Bond price

A

The bond price is the present value of the future cash payments to be paid by the issuer over the bond term. These payments are (1) the face value paid at maturity and (2) the interest payments.

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7
Q

What is the time frame for issuing bonds between interest dates

A

The time between the date the bonds are issued and the date of the bond

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8
Q

Journal entries for bond issued between interest date at a premium

A

Dr. Cash[facepremium] + [statedmonths between*face]
Cr. Premium on B/P - face * premium %
Cr. Accrued interest payable - “months between calculation”
Cr. Bonds Payable - Face

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9
Q

Journal entries for bond issued between interest dates at a discount

A

Dr. Cash[faceDiscount] + [statedmonths between*face]
Dr. Discount on B/P - face * discount %
Cr. Accrued interest payable - “months between calculation”
Cr. Bonds Payable - Face

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10
Q

Journal entries for amortization of bond issued at a premium between interest dates

A
First Payment
Dr. Interest expense
Dr. Premium
Dr. Accrued interest payable
Cr. Cash

Second payment
Dr. Interest expense
Dr. Premium
Cr. Cash

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11
Q

Journal entries for amortization on bond issued at a discount between interest dates

A
First Payment
Dr. Interest expense
Dr. Accrued interest payable
Cr. Discount
Cr. Cash

Second payment
Dr. Interest expense
Cr. Discount
Cr. Cash

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12
Q

How to account for a debt issue cost for bonds

A

Subtract from calculated amount

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13
Q

How to do straight line amortization

A
  1. Find the difference between premium & face or discount & face
  2. Divide 1 by life of bond
  3. Multiply face by rate
  4. That’s how you come up with journal entries
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14
Q

Steps for bond retirement

A
  1. Cash goes out the door so you’re crediting it
  2. Remove everything related to the bond which is the bond payable at face amount including unamortized portion
  3. Then see if you need a gain or a loss
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15
Q

Bond Retirement J/E

A
Dr. Bond Payable - Face amount
Dr. Premium if premium*
Dr. Loss if needed*
Cr. Cash - Face value multiplied by decimal
Cr. Discount if discount*
Cr. Gain if needed*
Cr. Unamortized costs
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