Debt

Question 1

How do you calculate the bond’s carrying amount at the end of a year when using the effective interest method?

Answer 1

Question 2

How do you calculate the bond issue cost (BIC) for the income statement?

Answer 2

Question 3

How do you calculate the current liability when a long-term note is payable in installments?

Answer 3

Question 4

How do you calculate bond interest expense for a bond issued during the year? (Update this to include exact formula)

Answer 4

Question 5

How do you calculate the carrying value of bonds issued with detachable stock warrants when both Fair values are known?

Answer 5

Question 6

How do you calculate the annual stated interest rate on bonds?

Answer 6

Question 7

How are earnings from a bond sinking fund treated?

Answer 7

Question 8

How do you calculate the carrying value of a bond issued at a discount using the effective interest method?

Answer 8

Question 9

How do you determine if there’s a gain on troubled debt restructuring involving only a modification of terms?

Answer 9

Question 10

How do you report a gain or loss when a company retires bonds early?

Answer 10

Question 11

What happens if a company uses the straight-line method instead of the effective interest method to amortize bond premiums?

Answer 11

Effective interest method reports higher interest expense initially.

Question 12

How do you calculate the Net Present Value (NPV) of an investment?

Answer 12

Question 13

How do you calculate a gain or loss on early bond retirement, including bond issue costs?

Answer 13

Question 14

How do you calculate the premium or discount on bonds issued with detachable warrants?

Answer 14

Question 15

How do you calculate the total bond issue proceeds when bonds are issued after the dated date, including accrued interest?

Answer 15

Question 16

How do you calculate the discount or premium for bonds with detachable warrants when both fair values are known?

Answer 16

Question 17

How does interest expense behave when a discount on bonds payable is recorded using the effective interest method? ( FIX THIS CARD, NO ANSWER)

Question 18

How do you calculate the unamortized discount for bonds, and when do you use it?(FIX THIS , is this for straight line method).

Answer 18

Question 19

How do you classify a note payable as current or noncurrent when it is being refinanced given collateral and a limit

Answer 19

Question 20

How do you calculate the unamortized bond premium using the effective interest method?

Answer 20

Question 21

How do you calculate the remaining note payable after a quarterly payment? Remember, note payable is not a Bond

Answer 21

Question 22

How do you JE the issuance of a bond at 98 with a face value of $50,000?

Answer 22

Question 23

A client bought a bond at a discount. What does this say about the market interest rate compared to the stated rate?

Answer 23

Question 24

How do you allocate proceeds when both FV of bonds and warrants are known vs. only one is known?

Answer 24

Question 25

How do you classify term, debenture, serial, and collateralized bonds?

Answer 25

Question 26

How do you calculate the required payment for an annuity due to accumulate a specific future value?

Answer 26

Question 27

What happens to a bond’s price when the market rate is lower than the bond’s interest rate?

Answer 27

Question 28

What is the step-by-step process to calculate the issue price of bonds given TVM info

Answer 28

Question 29

How do you classify a note payable when refinancing is intended but the lender is not financially capable of honoring the refinancing agreement?

Answer 29

Must have the ability and intent to reclassify a note as Long term

Question 30

A company issues $1,000,000 in bonds at a premium of $50,000, with bond issuance costs of $20,000. How do you calculate the net proceeds?

Answer 30

Question 31

How do you calculate the gain or loss on bond redemption, including unamortized bond premium, bond discount, and issuance costs?

Answer 31

Question 32

How do you calculate interest income after a troubled debt restructuring when the terms include reduced interest rates and extended maturity?

Answer 32

Question 33

Primary Reason for Agreeing to a Debt Covenant

Answer 33

Answer: To reduce the interest rate on the bonds being sold.

Explanation: A debt covenant reduces the lender’s risk by limiting the company’s long-term debt, which typically results in a lower interest rate for the company on the debt issued.

Question 34

How do you calculate the gain on restructuring debt when a company exchanges an asset (e.g., land) for a note?

Answer 34

Question 35

How do you handle the carrying value of debt when calculating gains in restructuring if no payments are mentioned? (This card needs work)

Answer 35

Question 36

What’s the difference between debt restructuring and troubled debt restructuring (TDR)?

Answer 36

Question 37

Net Present Value (NPV) Calculation Steps:

Answer 37

Question 38

Calculate the annual payment needed to accumulate a specific future value (FV) when deposits are made at the beginning of each period.

Answer 38

Question 39

What happens if a bond premium is not amortized?

Answer 39

Interest expense is overstated because the premium is not reducing the interest expense.

Stockholders’ equity is understated because overstated interest expense leads to lower net income, which reduces retained earnings (part of stockholders’ equity).

Question 40

What happens to interest expense for bonds issued at a premium vs. bonds issued at a discount?

Answer 40

Premium bonds: Interest expense decreases over time because the premium amortization reduces the expense.

Discount bonds: Interest expense increases over time because the carrying value of the bond increases, and interest expense is calculated based on this higher value.

Question 41

What are the steps to calculate the bond’s value at the end of Year 1 when given present value information.

Answer 41

Question 42

What is included and not included in bond issue costs?

Answer 42

Included: Legal fees, accounting fees, promotion costs, underwriting commissions.

Not Included: Advertising fees (expensed when incurred).

Question 43

How to calculate the new note payable balance after a quarterly payment?

Answer 43

Question 44

How do you calculate interest payable on bonds at year-end?

Answer 44

Question 45

How is the sinking fund reported on the balance sheet?

Answer 45

Question 46

How should a note payable be presented if it has no stated interest rate and the fair value of services is less than the note’s face value?

Answer 46

Question 47

How can you determine if a debt restructuring is classified as a troubled debt restructure?

Answer 47

Question 48

How do you calculate the gain on restructuring debt in a troubled debt restructuring when an asset is given up.

Answer 48

Question 49

What are the Steps to Solve for Present Value and Interest Income in a Debt Restructuring

Answer 49

Question 50

How to calculate Restructuring Debt Gain when cash is paid to settle Debt

Answer 50

Question 51

Whats the Primary Reason for a Debt Covenant Limiting the percentage of its Long-term Debt

Answer 51

To reduce the interest rate on bonds