Day 1 - Bonds Flashcards
Define: Debenture Bonds
Are unsecured bonds
MCQ-00639
What type of bonds in a particular bond issuance will not mature at the same time?
Serial Bonds - will mature in installments
MCQ-05916
What does the Bond Issue price equal?
Rule: Bond Issue price = the sum of the PV of the Maturity Value and the Interest Payment Annuity
PV of Maturity = Bonds Face Amount × PV Factor (decimal number)
PLUS
Interest Payment Annuity = Bond Face Amount × The Stated Interest Rate × PV of an Annuity (bigger number)
MCQ-00652
Equation: GAAP Interest Expense
Carrying Value at the beginning × Effective Periodic Interest Rate
GAAP Interest Expense / Carrying Value at Beginning = Periodic Interest Rate
MCQ-04678
What does it mean when a Bond sells at a premium?
The Bonds contract interest rate is higher than the Market Interest Rate
MCQ-08504
What does it mean when a Bond sells at a discount?
The Bonds Contract Interest Rate is lower than the Market Interest Rate
MCQ-08504
What is the price of a Bond when it is issued?
Bond Price = The Sum of the
PV of Future Principal Pmts
Plus: PV of Future Periodic Interest Pmts
(Note: Use Mkt Int Rate)
MCQ-08504
True or False: An Investor purchased a bond at a discount. At the purchase date, the carrying amount of the bond is more than the Cash paid to the Seller and the Face amount of the bond?
False & False
MCQ-00515
A company issues bonds at 98, with a maturity value of $50,000. What is the JE to record the original issue of the bonds?
Dr - Cash $49,000
Dr - Discount on Bond Payable $1,000
Cr - Bonds Payable $50,000
MCQ-05700
What is the relationship of Int Exp related to bonds payable when a discount on bonds payable has been recorded using the effective interest method?
Int Exp will increase by a larger amount each year
Int Exp on a bond payable is the combination of Interest paid and the amortization of either the Discount or the Premium.
Interest payments will be the same every period. However, due to amortization of the carrying value of the discount bond gets closer and closer to the face value every year which means the it gets larger.
MCQ-14839
What costs of the bond issuance should be amortized over the term of the bond under US GAAP?
Rule: All costs associated with the issuance of bonds should be amortized over the “outstanding” term of the bond
EX: Promotion costs, Engraving and printing, Underwrites’ commissions
MCQ-00662
How is the Bond Liability shown on the BS?
Bond Liability is shown on the BS net of unamortized discount
MCQ-00643
Bond issue price equals?
The Sum of the PV of the Maturity Value and the PV Interest Payment Annuity
MCQ-00652
If a premium on a bonds payable transaction is not amortized, what are the effects on interest expense and total stockholders equity?
Overstated and Understated
MCQ-08505
