FAR 4A Flashcards
A company issued a short-term note payable to a bank with a stated 12 percent rate of interest . The bank charged a .5% loan origination fee and remitted the balance to the company. The effective interest rate paid by the company in this transaction would be…
More than 12.5%
Serial bonds mature at _______ rather than on one single date.
regular intervals
Debenture bonds are __________ but rather are backed only by the general credit of the issuing firm.
not secured
The issue price for one $1,000 face value bond is the present value of all future payments discounted at the yield rate(example 9%). Stated Interest rate 6%
Issue price = $1,000(.422) + .06($1,000)(6.418) = $807
The market price of a bond issued at a premium is equal to the present value of its principal amount…
in addition to the present value of all future interest payments at the market (effective) interest rate
When debt is issued at a discount, interest expense over the term of debt equals the cash interest paid…
Plus discount
When a bond is purchased, the present value of the bond’s expected net future cash inflows discounted at the market rate of interest provides what information about the bond?
The price of the bond
The market price of a bond issued at a discount is the present value of its principal amount at the market (effective) rate of interest…
Plus the present value of all future interest payments at the market (effective) rate of interest.
When the effective interest method of amortization is used for bonds issued at a premium, the amount of interest payable for an interest period is calculated by multiplying the…
Face value of the bonds at the beginning of the period by the contractual interest rate.
Under the book value method for convertible bonds, the owners’ equity of the issuing firm is…
increased by the book value of the debt converted.
Main Co. issued bonds with detachable common stock warrants. Only the warrants had a known market value. The sum of the fair value of the warrants and the face amount of the bonds exceeds the cash proceeds. This excess is reported as…
Discount on bonds payable.
Gains or losses from the early extinguishment of debt, if material, should be…
Recognized in income from continuing operations in the period of extinguishment.
