Bonds Debt Restructure Flashcards
Any bond that matures in installments
Bonds & Debt Restructuring
Any bond that matures on a single date
Bonds & Debt Restructuring
A bond not secured by any collateral
Bonds & Debt Restructuring
Cash is held in a sinking fund for repayment of bond at maturity
5 years of requirements and maturity details should be disclosed
Bonds & Debt Restructuring
Present Value of the principal payment at maturity+ Present Value of Interest Payments made
: Market Value of Bond Proceeds
Bonds & Debt Restructuring
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)
Bonds & Debt Restructuring
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
Bonds & Debt Restructuring
Reported at FMV with unreleased gains and losses being included in earnings
Bonds & Debt Restructuring
Both discount and premium amortization amounts increase each year
Bonds & Debt Restructuring
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
Bonds & Debt Restructuring
Rate on the face of the bond
Bonds & Debt Restructuring
Rate that bonds are currently selling for
Bonds & Debt Restructuring
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
Bonds & Debt Restructuring
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
Bonds & Debt Restructuring
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.
Bonds & Debt Restructuring
When the bonds are issued
Bonds & Debt Restructuring
Cash for payment : Stated rate x Face amount
Bonds & Debt Restructuring
Interest expense : effective yield x carrying value
Any difference between expense and cash payment is applied as amortization against premium/discount
Bonds & Debt Restructuring
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
Bonds & Debt Restructuring
Gain or Loss is Ordinary
Extraordinary if both unusual and infrequent
Bonds & Debt Restructuring
If terms are modified; and future payments are now less than the carrying amount of the debt; then a Gain is recognized
Bonds & Debt Restructuring
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
Bonds & Debt Restructuring
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
Bonds & Debt Restructuring