Deck 14 Flashcards
Non monetary exchanges that contain commercial substance:
Recognize gains and losses immediately
Interest incurred during the construction period should be (capitalized or expensed)?
Capitalized (interest incurred before or after will be expensed)
Non monetary items include:
Property, plant, and equipment and the related accumulated depreciation
Settlement price > face value of the debt
Loss would be recognized in continuing operations
What rate is used to calculate the unamortized premium?
Yield rate
How do warrants affect the financial statements?
They increase stockholders equity
Effect interest rate > stated interest rate
The bond is issued at a discount (which increases interest expense)
Issuance of a bond at a discount (journal entry):
Dr. Cash and Discount on bonds payable; Cr. Bonds payable for the face amount
Debenture bonds:
Unsecured corporate bonds
Net carrying amount of bonds =
Face amount - unamortized discount - unamortized bond issuance cost (or add unamortized premium)
Gain/loss on extinguishment =
The difference between the reacquisition price and the net carrying amount
FV of bond =
PV of future interest payments + PV of principal
Unamortized premium vs. discount
Add unamortized premium to face amount/subtract unamortized discount from face amount to get carrying amount
Bond issuance costs:
Amortized as interest expense over the life of the bond (reduce the carrying amount of the bond)
Interest expense (straight line method) =
(Face value x stated rate) - premium or + discount
Periodic amortization (straight line method) =
(premium/discount) over number of periods bond is outstanding
Effective interest method amortization =
Interest expense - interest paid
Interest expense =
Net carrying value x effective interest rate
Interest paid =
Bond face x coupon rate
