Bonds

Question 1

What is par value?

Answer 1

When market rate and stated rate are the same

Question 2

When is a bond issued at discount?

Answer 2

When the market rates are higher than the stated rate

Question 3

When is a bond issued at a premium?

Answer 3

When the market rates are lower than the stated rate

Question 4

What is a zero coupon bond?

Answer 4

The bond pays no periodic interest and only receives the face value at maturity

Question 5

What is the journal entry when issuing a bond?

Answer 5

Debit ) Cash, BIC, Discount (plug)

Credit) Bonds Payable, Premium (plug), Accrued Interest Payable

Question 6

What is the carrying value of a bond?

Answer 6

The face net of discount or premium but do not include BIC

Question 7

How are unamortized discount/premium classified?

Answer 7

Under non-current liabilities in the balance sheet

Question 8

What is BIC and how is it classified?

Answer 8

Bond issuance costs and are classified as non-current asset amortized over the life of the bond starting from the bond issuance date

Question 9

What sort of expenses are included in BIC?

Answer 9

Printing and engraving of bond certs, legal and accounting fees, underwriter commissions, promotion costs such as prospectus