Chap 14 - Bonds and long-term notes

Question 1

periodic interest =

Answer 1

effective interest rate x amt of debt outstanding during the pd

Question 2

long-term liabilities =

Answer 2

PV related cash flows (principal and/or interest payments) discounted at the effective rate of interest at issuance.

Question 3

bond indenture

Answer 3

trustee is used to manage rights for bondholders and can sue, if needed

Question 4

bond debentures

Answer 4

full faith and credit issued

Question 5

subordinated debenture

Answer 5

no liquidation payments until claims of other specified debt issues satisified

Question 6

mortgage bond

Answer 6

backed by a lien on specified real estate. specified assets can be taken

Question 7

mortgage bond interest

Answer 7

lower rate and not as risky

Question 8

coupon bond/bearer bond

Answer 8

actual coupon used.

Question 9

callable/redeemable

Answer 9

issuer can buy back (call) outstanding bonds before maturity date

Question 10

callable bond debt

Answer 10

guards again high-cost

Question 11

callable bond amt

Answer 11

prespecified and at a premium and typically mandatory

Question 12

No calls

Answer 12

prohibits calls in the first few years

Question 13

sinking fund

Answer 13

retires a bond gradually over its term to maturity

Question 14

serial bonds

Answer 14

more structed way to retire bonds with several different maturity dates

Question 15

convertible bonds

Answer 15

retired as a consequence to convert them into shares of stock

Question 16

bond at issuance liability to?

Answer 16

corporation/issuer

Question 17

bond at issuance asset to?

Answer 17

investor/bondholders

Question 18

bond issuance for issuer JE

Answer 18

DR cash (face amt); CR bonds payable

Question 19

bond issuance for investor JE

Answer 19

DR investment in bonds (face amt); CR cash

Question 20

bond issuance issued?

Answer 20

on day of dated. if not, interest accrued from day of dated.

Question 21

bonds issued at a discount for issuer JE

Answer 21

DR cash (calc price); DR discounted on bonds payable (difference); CR bonds payable (face amt)

Question 22

bonds issued at a discount for investor JE

Answer 22

DR investment in bonds (face amt); CR discount on investment in bonds (difference); CR cash (calc price)

Question 23

bond issuance net method

Answer 23

same accts at recording of the bond, but the calc price is present value amt, not face amt

Question 24

effective interest method

Answer 24

effective market rate of interest x outstanding balance of debt (during interest pd)

Question 25

interest paid =

Answer 25

stated rate x face amt

Question 26

interest expense/revenue =

Answer 26

effective (market) rate

Question 27

interest rate for issuer JE

Answer 27

DR interest expense (eff rate x out bal); CR discount (difference); CR cash (stated rate x face amt)

Question 28

interest rate for investor JE

Answer 28

DR cash (stated rate x face amt); DR discount (difference); CR interest revenue (eff rate x out bal)

Question 29

book value for effective rate method =

Answer 29

face amt - balance in the discount

Question 30

Long-term notes borrower JE

Answer 30

DR cash; CR notes payable (face amt)

Question 31

Long-term notes lender JE

Answer 31

DR notes receivable (face amt); CR cash

Question 32

Long-term notes interest for borrower JE

Answer 32

DR interest expense; CR cash (stated rate x fact amt)

Question 33

Long-term notes interest for lender JE

Answer 33

DR cash (stated rate x face amt); DR interest revenue

Question 34

Long-term notes at maturity for borrower JE

Answer 34

DR notes payable; CR cash (face amt)

Question 35

Long-term notes at maturity for lender JE

Answer 35

DR cash (face amt); CR notes receivable