Bonds (F5:M4-5)

Question 1

how is a bond amortization schedule set up?

Answer 1

beg CV / market rate / int exp / pmt / am / end CV

beg CV x market rate = int exp - pmt = am +/- end CV

*pmt = face value of bond x stated rate (constant)

Question 2

how to calculate carrying value of bond payable

Answer 2

bond payable + unamortized net premium/ -discount

*issuance costs are added to discount and subtracted from premium

Question 3

how is bond issue (market) price calculated?

Answer 3

PV of future principal payment + PV of future interest payments

*use yield (market) rate

Question 4

what are some other names for the stated interest rate?

Answer 4

nominal or coupon rate

Question 5

what is another name for the market interest rate?

if market rate and effective rate differ, which rate should be used to determine interest expense?

Answer 5

effective rate

the effective rate

Question 6

if the market rate is higher than the stated rate, bonds will be issued at a ___.

if the stated rate is higher than the market rate, bonds will be issued at a ___.

Answer 6

discount

premium

Question 7

amortization of discount/premium has what impact on interest expense each period?

Answer 7

d: increasing interest expense
p: decreasing interest expense

Question 8

are debenture bonds secured or unsecured?

Answer 8

unsecured