F5 - Long-Term Liabilities and Bonds Payable

Question 1

At any given time under a discount, how do the effective interest method the straight line method affect the carrying value of bonds?

Answer 1

Straight line method overstates the carrying value except at inception and maturity; vice-versa for a premium

Question 2

How is bond amortization calculated under the effective interest method?

Answer 2

(Issuance amount x market rate) - (face value x stated rate)

Question 3

What is the calculation for APIC: Warrants?

Answer 3

Number of bonds x warrants per bond x market value

Question 4

T/F: When a discount on a bond or note is amortized, the discount amortization increases interest expense for the period

Answer 4

True; amortization increases the interest expense for the period

Question 5

How is stockholders’ equity affected by bond conversion under the book value method?

Answer 5

When the book value method is used to account for the conversion of bonds to stock, the stock issued is recorded at the carrying value of the bonds

Question 6

What type of bonds in a particular bond issuance will not all mature on the same date?

Answer 6

Serial bonds

Question 7

How are bond issuance costs treated under GAAP? Under IFRS?

Answer 7

Under GAAP they are set up as a deferred charge (asset) and amortized over the life of the bond; under IFRS they reduce the carrying amount of the bond (through increased discount or decreased premium)

Question 8

What type of bonds are debenture bonds?

Answer 8

Unsecured

Question 9

How is the interest payment calculated?

Answer 9

Face value x stated rate