F5-Bonds Flashcards
What is the market price of a bond?
The PV of the principal + PV of interest payments at the market interest rate.
What is the simple way to remember the amortization of a bond?
I/S - B/S =Amortization
I/S= Interest Expense
B/S= Interest Paid
How to calculate gain/loss from the retirement of bonds?
Take the book value (face value + unamortized discount) less the settlement amount.
How can a bond issue impact stockholder’s equity?
When there are detachable stock warrants.
**The equity is increased by the # of warrants x value of each warrant.
How in accrued interest receivable calculated?
Take amount of note x effective interest rate x portion of year until next payment.
Between interest dates is the carrying value of a bond greater than or less than the Cash paid and Face Value?
The carrying value is less than both because the cash paid includes accrued interest and because the carrying value includes a discount on the face amount.
What is the carrying amount of a Treasury note between interest dates?
- Take the original “purchase price” less accrued interest, and multiply times the interest rate to get the discount or premium.
- Figure the monthly amortization and multiply by month that will accrue interest.
- Add or subtract amortization from the purchase price
How is carrying amount affected by bond issuance costs when using IFRS?
The costs are deducted from any premium (net carrying value)
What is the sole purpose of the face rate of interest?
to determine the cash payments (interest payable each period), not to value the bond or discount it
How is stockholder’s equity impacted when bonds are converted to stock
APIC will be credited for the difference between the common shares converted at par value less the carrying amt (book value) of bonds (net of discount or premium).
