F.4 M.4 Bonds Flashcards

1
Q

The market price of a bond issued at premium is equal ro the present value of it’s principle amount:

A

Market price of a bond is the present value of the principle +the present value of all interest payments, using the market interest rate

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2
Q

9% bond of $500,000 mature January of year 11. Bonds were issued for $469,500 to yield 10%. interest is annual. use the EFFECTIVE INTEREST METHOD of amortizing bond discount. What should be bonds payable in the balance sheet?

A

46950010%=46950
500000
9%= 45000
=46950-45000=1950*1/2 of the year =975
=469500+975=470475

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3
Q

What is a detachable common stock warrant?

A
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4
Q

A company issued bonds with detachable common stock warrants. The issue price exceeded the sum of the warrants’ fair value and face value of the bonds. The fair value of the bonds cannot be determined. What value, if any, should be assigned to the warrants?

A

The fair value of the warrants

Because the warrants are detachable, the issue price of the bonds and warrants together should be allocated based on each component’s fair values on the issuance date. Because the warrants’ fair value is known, the remainder of the issuance price not allocated to the warrants is allocated to the bonds.

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5
Q

bond indenture

A

the document that describes the contract between the issuer and bond holders

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