Chapter 8 and 9 Flashcards
“Discount on Bonds payable” is what type of account?
Contra liability; so it goes up (+) on the debit side and down (-) on the credit side
Interest is always paid on the ______ (even if there is a premium or discount)
Interest is always paid on the full face value
Say an $1000 bond is quoted at 101.5, what is the market price?
$1015 (bc 101.5% of face value = $1000 x 1.015)
Bond payable
Groups of debt securities issued to multiple lenders called bondholders
What is the course of action for a company that is being sued, is expecting to lose the lawsuit, and can also estimate the loss?
A journal entry is required
Dr. loss from contingency
Cr. contingent liability
What is the course of action for a company that is getting sued, is expecting to lose the lawsuit, and can not estimate an amount?
Disclose in the footnotes to the financial statements
What is the course of action for a company that is getting sued and is expecting to win the lawsuit?
Do nothing; you do not want to book a journal entry and overstate assets
What would the journal entry be for issuing a bond at a discount? (in this scenario we are the bond issuer)
Dr. cash (remember to (-) the discount from cash)
Dr. discount on bonds payable (remember this is a CONTRA LIABILITY)
Cr. bonds payable
What is the journal entry for issuing a bond at a premium?
Dr. cash
Cr. bond payable
Cr. premium on bond payable
What is the “carrying value”of the bond?
The carrying value of a bond is the amount at which the bond is reported on the balance sheet. It is initially recorded at cost, which is the market price at the time of purchase. Over time, this value is adjusted for any premiums or discounts.
What is the formula for Amortization per period?
Amortization per period= total premium or discount ÷ # of periods
What is the formula to figure out the amount of a bond discount?
Face value - issuing price
A premium ______ toward face/maturity value
DECREASES
A discount ______ toward face/maturity value
INCREASES
