F5 M4 M5 Bonds

Question 1

What is the bond indenture?

Answer 1

The document that describes the contract between the issuer and bond holder

Question 2

The state rate, nominal rate, and coupon rate are synonymous with the interest ___

Answer 2

To be paid

Question 3

The market interest rate is the rate of interest actually earned by the bond holder which would be interest _____

Answer 3

Expense

The market rate is also the yield.

Question 4

How do you calculate your market rate?

Answer 4

Coupon / price = market rate

Question 5

If you sell a bond at a discount you have a (gain/loss).

Answer 5

Loss

Question 6

If you sell a bond at a premium you have a (gain/loss)

Answer 6

Gain

Question 7

____ bonds are convertible into common stock of the bondholder at the option of the bondholder. One thing to remember with these bonds is that they are a complex _____.

Answer 7

Convertible bonds

Complex capital structure

Question 8

The bond selling price is dictated by the ____ rate.

Answer 8

Market rate

Question 9

When the bond is issued at par value there is no ____ or ____ and the coupon rate is equal to the ____.

Answer 9

No discount or premium

Coupon rate is equal to the market rate

Question 10

Which rate do you use to find the present value factors?

Answer 10

Market rate

Question 11

GAAP Interest expense = _____ x ____

Answer 11

Carrying value at the beginning of the period x effect periodic interest rate

Question 12

___ bonds are bonds that mature in installments.

Answer 12

Serial bonds

Question 13

Under IFRS and GAAP, bond issuance costs ____ the cash received from the bond issuance and are ___ from the carrying value of the liability.

Answer 13

Reduce

Deducted

Question 14

____ bonds are unsecured bonds.

Answer 14

Debenture bonds

Question 15

_____ bonds are redeemed pro-rata over the life of the issue.

Answer 15

Serial bonds

Question 16

Bond liability is shown on the balance sheet net of ____.

Answer 16

Unamortized discount

Question 17

All costs associated with the issuance of bonds should be ____ over the outstanding term of the bonds.

Answer 17

Amortized

Question 18

The unamortized premium is amortized over the life of the bond at the ____ rate.

Answer 18

Yield/market rate

Question 19

Under IFRS, amortization is done over the _____ of the bond, not the contractual life of the bond.

Answer 19

Expected life

Question 20

Under GAAP, the amortization period is the period that the bonds are ____ from the date the bonds are sold.

Answer 20

Outstanding

Question 21

The straight line method of amortization is not permitted under ____. Under ____ it is allowed if it is not materially different from the effective interest method.

Answer 21

IFRS

GAAP

Question 22

Coupon rate is 10%, market rate is 12%, will I have my bond sold at a premium or a discount.

Answer 22

Discount

Question 23

Coupon rate is 10%, market rate is 8%, will I have my bond sold at a premium or a discount.

Answer 23

Premium

Question 24

Under the effective interest method, interest expense is calculated by

Answer 24

Carrying value at the beginning of the period x effective (market) interest rate
This should include bond issue costs if any

Question 25

Under the effective interest method, the amortization interest is a ____ rate.

Answer 25

Constant

Question 26

When the bond is issued between interest dates, how do you calculate the accrued interest?

Answer 26

Face value of the bond x the coupon rate x (the months accrued /12)

Question 27

Journal entry: Record the sale of a bond that has 3 months of accrued interest due to the bond being issued between interest dates.

Answer 27

Dr Cash (PV+accrued interest)
Dr Discount on bonds payable (plug)
Cr Bonds payable (Face Value)
Cr. Bond interest payable (accrued interest)

Question 28

Regardless of whether the coupon is paid, interest is accrued for _____ with the matching principle for publicly traded entities

Answer 28

Quarterly