Chap 14 - Bonds and long-term notes Flashcards
periodic interest =
effective interest rate x amt of debt outstanding during the pd
long-term liabilities =
PV related cash flows (principal and/or interest payments) discounted at the effective rate of interest at issuance.
bond indenture
trustee is used to manage rights for bondholders and can sue, if needed
bond debentures
full faith and credit issued
subordinated debenture
no liquidation payments until claims of other specified debt issues satisified
mortgage bond
backed by a lien on specified real estate. specified assets can be taken
mortgage bond interest
lower rate and not as risky
coupon bond/bearer bond
actual coupon used.
callable/redeemable
issuer can buy back (call) outstanding bonds before maturity date
callable bond debt
guards again high-cost
callable bond amt
prespecified and at a premium and typically mandatory
No calls
prohibits calls in the first few years
sinking fund
retires a bond gradually over its term to maturity
serial bonds
more structed way to retire bonds with several different maturity dates
convertible bonds
retired as a consequence to convert them into shares of stock
bond at issuance liability to?
corporation/issuer
bond at issuance asset to?
investor/bondholders
bond issuance for issuer JE
DR cash (face amt); CR bonds payable
bond issuance for investor JE
DR investment in bonds (face amt); CR cash
bond issuance issued?
on day of dated. if not, interest accrued from day of dated.
bonds issued at a discount for issuer JE
DR cash (calc price); DR discounted on bonds payable (difference); CR bonds payable (face amt)
bonds issued at a discount for investor JE
DR investment in bonds (face amt); CR discount on investment in bonds (difference); CR cash (calc price)
bond issuance net method
same accts at recording of the bond, but the calc price is present value amt, not face amt
effective interest method
effective market rate of interest x outstanding balance of debt (during interest pd)
interest paid =
stated rate x face amt
interest expense/revenue =
effective (market) rate
interest rate for issuer JE
DR interest expense (eff rate x out bal); CR discount (difference); CR cash (stated rate x face amt)
interest rate for investor JE
DR cash (stated rate x face amt); DR discount (difference); CR interest revenue (eff rate x out bal)
book value for effective rate method =
face amt - balance in the discount
Long-term notes borrower JE
DR cash; CR notes payable (face amt)
Long-term notes lender JE
DR notes receivable (face amt); CR cash
Long-term notes interest for borrower JE
DR interest expense; CR cash (stated rate x fact amt)
Long-term notes interest for lender JE
DR cash (stated rate x face amt); DR interest revenue
Long-term notes at maturity for borrower JE
DR notes payable; CR cash (face amt)
Long-term notes at maturity for lender JE
DR cash (face amt); CR notes receivable
