FAR 11_Bonds and Present Value Tables Problem Areas Flashcards
Bonds: Between the Market Value and Book Value Methods, which one is GAAP?
The book value method is GAAP
Bonds: What are the key characteristics of the Market Value Method?
Has a gain or loss, which is the plug.
C/S + APIC = Market Value of Stock
Bonds: What are the key characteristics of the Book Value Method?
No gain or loss, APIC is the plug.
Book Value of the bonds
If a bond has warrants, and both the value of the bond and the warrants are know, what approach is used to account for the bond and warrants?
Relative Fair Market Value Approach.
Warrants go to APIC-Warrants
*If only value of warrants are known, bond value is plugged
*If both bond and warrant has a value, the Face Value and Warrants are allocated
If a bond has warrants, and the value of only the warrants or the bond are know, what approach is used to account for the bond and warrants?
The FMV approach is used. The security in which the FMV is known is recorded at market value, and the other security is a plug.
If a bond is issued with nondetachable warrants, how are the two securities valued?
Bonds at FMV. The warrants do not receive a value since they are nondetachable
How does the fair value method affect notes with discounts or premiums?
Discounts and premiums are not recorded when the Fair Value Method is used.
What are the two methods used to account for the acquisition of treasury stock?
Par Method, and the Cost Method.
Under the Par Method, what are the JE’s for the repurchase, reselling, and retirement of stock?
(There will be three entries)
Repurchase DR: APIC (Difference between old sale price and par) DR:T/S @ par CR: Cash CR: T/S APIC (Plug)
Resell
Treat like normal sale. T/S is credited at par.
Retire
DR: C/S
CR: T/S at par
Under the Cost Method, what are the JE’s for the repurchase, reselling, and retirement of stock?
(There will be three entries)
Repurchase
DR: T/S (at cost)
CR: Cash
Resell
DR:Cash
CR:T/S at old repurchase price
*Dr or Cr plug is APIC-TS
Retired DR: C/S at par DR: APIC C/S (Difference between old sale price and par) CR: T/S (Old repurchase price) CR: APIC-T/S (Plug)
The formula for converting an Ordinary Annuity factor to an Annuity Due factor
Factor * (1+Interest Rate)
*Ordinary Annuity is less than Annuity Due
This is because ordinary annuities happen later in time.
The formula for converting an Annuity Due factor to an Ordinary Annuity factor
Factor / (1+Interest Rate)
*Ordinary Annuity is less than Annuity Due
This is because ordinary annuities happen later in time.
When converting from an Ordinary Annuity of one less period, to an Annuity due of one greater period, what is the formula used?
Example: Given Ordinary Due factor for 4 periods, but need Annuity Due factor for 5 periods.
Take Ordinary Annuity Factor +1 to convert to the Annuity due.
*Ordinary Annuity is less than Annuity Due
This is because ordinary annuities happen later in time.
When converting from an Annuity due of one greater period, to an Ordinary Annuity of one less period, what is the formula used?
Example: Given Annuity Due factor for 5 periods, but need Ordinary Due factor for 4 periods.
Take Annuity Due Factor -1 to convert to Ordinary Annuity
*Ordinary Annuity is less than Annuity Due
This is because ordinary annuities happen later in time.
What are the formulas to convert from FV to PV, and PV to FV?
FV = PV(1+i)^t PV = FV/(1+i)^t
