Long term liability and Bonds Payable

Question 1

Dates

Answer 1

Half year etc.

Question 2

market rate

Answer 2

caused by premium or discount

Question 3

Convertible bonds

Answer 3

converted into stocks at the option of the bondholder

Question 4

nondetachable warrants

Answer 4

convertible bond itself must be converted to capital stocl

Question 5

detachable warrants

Answer 5

warrants can be bought and sold separately from the bonds;

bond is not surrendered upon conversion

only warrants + cash representing exercise price of the warrants can be surrendered

Question 6

term bonds

Answer 6

single maturity date

entire principle paid at the end of the term

Question 7

serial bond

Answer 7

pre-numbered bonds; issuer may call and redeem a portion by serial number often in a series of annual installments

Question 8

bonds vs. notes

Answer 8

absolute terms in bonds in certain areas not in notes

Question 9

usually in denominations of 1000s

Answer 9

if you sold 200 bonds

200,000 $

Question 10

price is always quoted

Answer 10

% of par value

Question 11

coupon rate

Answer 11

stated interest rate

Question 12

premium or discounting

Answer 12

result of buyer and seller adjusting the coupon rate to the prevailing market rate

Question 13

indenture

Answer 13

contract for purchase of bonds

Question 14

principal pay off

Answer 14

full bond amount

Question 15

bond issued at par

Answer 15

market rate = coupon rate

Question 16

price -> Fair Value of Bonds

Answer 16

principle + interest annual payments

PV pf that at market rate!

this total should equal the FV

Question 17

JE

Answer 17

Dr. Cash
Cr. B/P

Creditor
Dr. Inv
Cr. Cash

Question 18

Discount

Answer 18

Low coupon rate

price < FV

Question 19

Discount

Answer 19

Low coupon rate!!

price < FV

dr. cash
dr. disc on bonds payable
cr. bonds payable

investor

dr. inv in bonds
cr. cash

Question 20

Stated Interest Rate **

Answer 20

Coupon rate

does not equal market rate unless it is at par; therefore, you will have a premium or discount on the buying of the bond

stated market rate will not change regardless what happens at issuance

Question 21

effective interest rate*

Answer 21

market rate

coupon rate adjusted for premium or discount

because the amount of cash to be received in the future is fixed at the time the bond is sold; market will automatically
adjust so purchasable receives market rate of interest for comparable risk bonds

Question 22

unamortized discount on bonds payable

Answer 22

contra account to bond payable; direct reduction on the b/S from the face value of the bonds

Question 23

discount

Answer 23

remove discount from FV to get to carrying value

Question 24

premium

Answer 24

add discount to FV to get to carrying value

Question 25

unamortised discount or bond

Answer 25

difference between carrying value and face value

Question 26

bond issuance cost

Answer 26

transactions occurred when bonds are issued

include legal fees, accounting fees, underwriting commissions, and printing

Question 27

bond issuance costs under GAAPP and IFRS

Answer 27

1) presented on the b/s as a direct reduction of carrying amount of bond
2) bonds proceeds are recorded net of bond issuance costs at issuance
3) bond costs are amortized as interest expense over the lofe of the bond using the effective interest method

Question 28

Example on F37

Answer 28

reduce the purchase price by bond issuance cost

discount includes discount + bond issuance cost

*DOES NOT REDUCE FACE- just lump it with discount

Question 29

if you have bond issuance cost

Answer 29

market rate is not equal to effective interest rate

need to disclose all of this

Question 30

Bond issuance costs incurred before the issuance of the bonds

Answer 30

deferred on the b/s until the bond liability is recorded

example on f5-38 separate entries for issuance cost and discount