Bonds Debt Restructure

Question 1

Any bond that matures in installments

Answer 1

Serial bond

Question 2

Any bond that matures on a single date

Answer 2

Term bond

Question 3

A bond not secured by any collateral

Answer 3

Bonds & Debt Restructuring

Question 4

Cash is held in a sinking fund for repayment of bond at maturity

5 years of requirements and maturity details should be disclosed

Answer 4

Bonds & Debt Restructuring

Question 5

Present Value of the principal payment at maturity+ Present Value of Interest Payments made
: Market Value of Bond Proceeds

Answer 5

Bonds & Debt Restructuring

Question 6

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)

Answer 6

Bonds & Debt Restructuring

Question 7

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

Answer 7

Bonds & Debt Restructuring

Question 8

Reported at FMV with unreleased gains and losses being included in earnings

Answer 8

Bonds & Debt Restructuring

Question 9

Both discount and premium amortization amounts increase each year

Answer 9

Bonds & Debt Restructuring

Question 10

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

Answer 10

Bonds & Debt Restructuring

Question 11

Rate on the face of the bond

Answer 11

Bonds & Debt Restructuring

Question 12

Rate that bonds are currently selling for

Answer 12

Bonds & Debt Restructuring

Question 13

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

Answer 13

Bonds & Debt Restructuring

Question 14

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

Answer 14

Bonds & Debt Restructuring

Question 15

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.

Answer 15

Bonds & Debt Restructuring

Question 16

When the bonds are issued

Answer 16

Bonds & Debt Restructuring

Question 17

Cash for payment : Stated rate x Face amount

Answer 17

Bonds & Debt Restructuring

Question 18

Interest expense : effective yield x carrying value

Any difference between expense and cash payment is applied as amortization against premium/discount

Answer 18

Bonds & Debt Restructuring

Question 19

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

Answer 19

Bonds & Debt Restructuring

Question 20

Gain or Loss is Ordinary

Extraordinary if both unusual and infrequent

Answer 20

Bonds & Debt Restructuring

Question 21

If terms are modified; and future payments are now less than the carrying amount of the debt; then a Gain is recognized

Answer 21

Bonds & Debt Restructuring

Question 22

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

Answer 22

Bonds & Debt Restructuring

Question 23

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

Answer 23

Bonds & Debt Restructuring