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FAR5 > Long-term Liabilities and Bonds Payable > Flashcards

Long-term Liabilities and Bonds Payable Flashcards

1
Q

The market interest rate is cause my a ______ or _______

A

premium; discount

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2
Q

Nondetachable warrants

A

a convertible bond must be converted into capital stock

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3
Q

Detachable warrants

A

Bond is not surrendered upon conversion, only the warrants plus cash representing the exercise price of the warrant. The warrants can be bought and sold separately from the bonds

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4
Q

Bonds that have a single fixed maturity date. The entire principal is paid at the end of this term/period

A

term bonds

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5
Q

pre-numbered bonds that the issuer may call and redeem a portion by serial number

A

serial bonds

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6
Q

Bonds are usually in denominations of _______

A

$1000

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7
Q

Price is always quoted in _______ for bonds

A

100’s

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8
Q

________ is a contract for purchase of bond

A

Indenture

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9
Q

Equal to the stated interest rate on the bond

A

coupon rate

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10
Q

Check amount (bond interest) =

A

coupon rate x face

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11
Q

Principal payoff is always the full ______ amount

A

face

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12
Q

__________ is the result of buyer and seller “adjusting” the coupon rate to the prevailing market rate of interest

A

premium/discount

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13
Q

A bond is issued at ___ _____ when the stated rate on the bond is equal to the market interest rate on the date the bonds are issued

A

par value

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14
Q

Interest is calculated using the present value of an ______

A

annuity of $1

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15
Q

The principal is calculated using the:

A

present value of $1

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16
Q

2 components that make up the fair value of a bond

A

PV of future interest payments (at market rate)

PV of principal (at market rate)

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17
Q

When the market rate is higher than the coupon rate, a ________ exists

A

discount

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18
Q

JE for an issued bond at a discount (borrower)

A

DR: cash
DR: discount on bond payable
CR: bond payable

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19
Q

JE for an issued bond at a discount (investor)

A

DR: investment in bonds
CR: Cash

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20
Q

When the market rate is lower than the coupon rate, a _______ exists

A

premium

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21
Q

JE for an issued bond at a premium (borrower)

A

DR: cash
CR: premium on bonds payable
CR: bonds payable

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22
Q

JE for an issued bond a premium (investor)

A

DR: investment in bonds
CR: cash

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23
Q

Stated interest rate =

A

coupon rate

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24
Q

effective interest rate =

A

market rate

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25
Q

An unamortized discount is ______ from the face (par) value of the bond to arrive at the carrying value at any particular point in time

A

subtracted

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26
Q

An unamortized premium is _____ to the face (par) value of the bond to arrive at the carrying value at any particular point in time

A

added

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27
Q

Carrying value for a premium bond=

A

Face + unamortized premium

28
Q

Carrying value for a discount bond=

A

face - unamortized discount

29
Q

Bond issue costs should be recorded as an ______ (______ _____) and _______ from the date of issuance of the bonds into expense using the straight-line method

A

asset; deferred charge; amortized

30
Q

Under IFRS, bond issue costs are not recorded as a separate _____. Instead, they are deducted from the carrying value of the liability and amortized using the _____ ____ _____

A

asset; effective interest method

31
Q

Periodic amortization (straight-line method)

A

(premium/discount) / # of periods bond is outstanding

32
Q

Interest expense (for discount)=

A

check amount + amortization

33
Q

Interset expense (for premium)=

A

check amount - amortization

34
Q

The straight-line is not permitted under _____

A

IFRS

35
Q

JE to record interest expense for discounted bond (borrower)

A

DR: bond interest expense
CR: discount on bond payable (amortization)
CR: cash (check amount)

36
Q

JE to record interest revenue for discounted bond (investor)

A

DR: cash (check amount)
DR: investment in bonds (amortization)
CR: bonds interest revenue

37
Q

JE to record interest expense for premium bond (borrower)

A

DR: bond interest expense
DR: Premium on bond payable (amortization)
CR: cash (check amount)

38
Q

JE to record interest expense for premium bond (investor)

A

DR: cash (check amount)
CR: investment in bonds (amortization)
CR: bonds interest revenue

39
Q

Effective interest method also known as

A

constant yield method

40
Q

Effective interest method ______ by both GAAP and IFRS

A

required

41
Q

Interest expense calculation under effective interest method = ___________ and goes on the ______ ______

A

net carrying value x effective interest rate

income statement

42
Q

Interest paid = _________ and goes on the ______ ______

A

bond face x coupon rate

balance sheet

43
Q

The difference between the interest expense and the interest paid is the _________

A

amortization

44
Q

The straight-line has a _________ carrying value over the life of the bond than the effective interest method

A

higher

45
Q

JE to record the sale of a bond in between interest dates (at a discount)

A

DR: cash
DR: discount on bonds payable
CR: bonds payable
CR: bond interest expense (for months prior to sale beginning Jan 1)

46
Q

A bond sinking fund is a ______ fund (restricted cash)

A

trustee

47
Q

A sinking fund is generally a ________ (restricted) asset

A

noncurrent

48
Q

Serial bonds mature in _______

A

installments

49
Q

Amortization methods on serial bonds (2):

A

effective interest method

bonds outstanding method

50
Q

Convertible bonds are often issued at _____ than face value because of the value of the conversion feature

A

more

51
Q

Under GAAP, the issuance price is allocated to the bonds with __ _______ of the conversion feature, because it is difficult to assign a specific value to the conversion feature

A

no recognition

52
Q

Conversion of bonds may be recorded under either the:

A

book value method; market value method

53
Q

Under the book value method, gain and loss is ___________

A

not recognized

54
Q

The book value method is _______

A

GAAP

55
Q

The book value method has no _____ _____ impact. Only ____ _____ and ______ are affected

A

income statement; common stock; APIC

56
Q

Under the market value method, gain or loss is ______

A

recognized

57
Q

The market value method has an _____ _____ impact

A

income statement

58
Q

For bonds sold with detachable stock purchase warrants, the warrant is accounted for ________

A

separately

59
Q

The value assigned to the separate conversion feature is credited to _________

A

APIC- Warrants

60
Q

JE at issuance of bonds with detachable stock purchase warrants

A

DR: cash
CR: bonds payable
CR: APIC- Warrants

61
Q

The ____ ______ ______ is used if only the FV of the warrants is known

A

warrants only method

62
Q

The ____ _____ ______ is used if the FV of both the warrants and bonds are known

A

market value method

63
Q

Calculation of the gain or loss for extinguishment of debt

A

reacquisition price - net carrying amount

64
Q

Gain on loss from extinguishment of debt is normally reported in:

A

income from continuing operations

65
Q

Gain or loss from extinguishment of debt can possibly be reported as an

A

extraordinary item

FAR5 (3 decks)

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