Bonds

Question 1

How are bond issue costs treated?

Answer 1

As a deduction from the CV of bonds and amortized

Contra liability account

Question 2

What can bond issue costs include?

Answer 2

Printing and engraving
Legal and accounting fees
Underwriter commissions
Promotion costs

Question 3

What is the reported amount for a bond?

Answer 3

CV of bond
= Face value
+/- Unamortized premium/discount

Question 4

What are the proceeds for a bond with accrued interest?

Answer 4

Cash = Face amount + accrued interest - discount + premium

Bond reported at carry amount, interest reported as payable
Interest expense calculated from when bond is issued

Question 5

How is a bond retirement recorded?

Answer 5

DR Bond Payable (face)
DR Unamortized Premium
DR Loss (plug)
          CR Unamortized BIC
          CR Unamortized Discount
          CR Cash
          CR Gain (plug)

Question 6

How is conversion on bonds recorded using Book Value Method?

Answer 6

DR Bond Payable (face)
DR Premium 
         CR Discount
         CR BIC
         CR C/S (par)
         CR APIC (plug)

Record at BV of bonds

Question 7

How is conversion on bonds recorded using Market Value Method?

Answer 7

DR Bond Payable (face)
DR Premium
DR Loss (plug)
           CR Discount
           CR BIC
           CR C/S (par)
           CR APIC 
           CR Gain (plug)

Record at FMV of stock with G/L

Question 8

How are bonds with detachable stock warrants recorded?

Answer 8

If FMV of both securities know, use Relative FMV approach
If FMV of only one security known, other is plug
No value given for non-detachable warrants