Bonds

Question 1

amortization of bond premium or discount

Answer 1

straight line not gap amortization gap

Question 2

when amortizing a discount

Answer 2

The interest expense increase each year and amortization

expense increase each yeat

Question 3

when amortizing a premium

Answer 3

When amortizing a premium the interest expense decrease each year but the amortization of premium increase each year

Question 4

BIC

Answer 4

A Contra Liablity account. Costs directly associated with

the direct issuance of bonds

Question 5

Bonds with warrents

Answer 5

Releative Fair Market Value

Question 6

Record and report

Answer 6

Record Bonds payable always at face

Report +_ discount or premium

Question 7

Bonds under IFRS

Answer 7

a. Similar to US accounting standards, IAS 39 provides that financial liabilities are initially mea­sured at fair value, and subsequently measured at amortized cost using the effective interest method.
(1) An option can be made to value financial liabilities at fair value.
b. Financial instruments with charac­teristics of both debt and equity are referred to as “compound instruments.”
(1) Accounting for com­pound instruments is another area where IFRS differs from US GAAP. Convertible bonds, bonds with de­tachable warrants, and other compound instruments must be separated into their components of debt and equity.

(a) The liability component is initially recorded at fair value, and the residual value is assigned to the equity component.
(b) Each component is presented in the appropriate section of the bal­ance sheet. IFRS refers to the fair value option as “Fair Value through Profit or Loss” (FVTPL).
(c) If the fair value option is elected for a financial liability, then the liability is revalued at the end of the reporting period and the resulting gain or loss is recognized in profit or loss for the period.