Bonds & Payables & Accrued Liabilities Flashcards
How should a change in the value of the liability after the it has been fully depreciated be reported?
In profit or loss
How and in what period is the cost of a premium recorded?
Cost of the premium is charged to sales in the period that benefit from the premium offer
How and it what period are warranties offered recorded?
Create a liability if the cost can be reasonably estimated. The entire liability should be accrued in the year of sale to match the cost with the corresponding revenue.
What is the definition of redeeming a bond?
Bond issuer repays the principal amount to the bond holder, either at the maturity date or earlier if the bond is callable
Journal entry to record the issuance of a bond at a discount
Dr. Cash (for the maturity value * percent discount)
Dr. Discount on bonds payable (plug)
Cr. Bonds payable (for the maturity value)
Journal entry to record the issuance of a bond at a premium
Dr. Cash (for the maturity value * percent premium)
Cr. Premium on bonds payable (plug)
Cr. Bonds payable (for the maturity value)
Present value of the bond at issuance
PV of principal + PV of interest payments
Formula for the effective interest rate when amortizing a bond
Market rate / # of payments per year
Formula for interest expense when amortizing a bond
Net carrying value * Effective interest rate
Formula for interest payment when amortizing a bond
Face value * Coupon rate
Coupon rate formula
Stated interest rate / # payments per year
Amortization formula
Interest payment - Interest Expense
How to record a contingent liability
Must be PROBABLE. And If all amounts within a range of values are equally likely, then the LOWEST amount in the range is the measurement amount.
When interest expense is GREATER than the interest payment to bondholders, this is a bond discount or premium?
Discount
When interest expense is LESS than the interest payment to bondholders, this is a bond discount or premium?
Premium
