Long term liability and Bonds Payable Flashcards
Dates
Half year etc.
market rate
caused by premium or discount
Convertible bonds
converted into stocks at the option of the bondholder
nondetachable warrants
convertible bond itself must be converted to capital stocl
detachable warrants
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
term bonds
single maturity date
entire principle paid at the end of the term
serial bond
pre-numbered bonds; issuer may call and redeem a portion by serial number often in a series of annual installments
bonds vs. notes
absolute terms in bonds in certain areas not in notes
usually in denominations of 1000s
if you sold 200 bonds
200,000 $
price is always quoted
% of par value
coupon rate
stated interest rate
premium or discounting
result of buyer and seller adjusting the coupon rate to the prevailing market rate
indenture
contract for purchase of bonds
principal pay off
full bond amount
bond issued at par
market rate = coupon rate
price -> Fair Value of Bonds
principle + interest annual payments
PV pf that at market rate!
this total should equal the FV
JE
Dr. Cash
Cr. B/P
Creditor
Dr. Inv
Cr. Cash
Discount
Low coupon rate
price < FV
Discount
Low coupon rate!!
price < FV
dr. cash
dr. disc on bonds payable
cr. bonds payable
investor
dr. inv in bonds
cr. cash
Stated Interest Rate **
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
effective interest rate*
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
unamortized discount on bonds payable
contra account to bond payable; direct reduction on the b/S from the face value of the bonds
discount
remove discount from FV to get to carrying value
premium
add discount to FV to get to carrying value
unamortised discount or bond
difference between carrying value and face value
bond issuance cost
transactions occurred when bonds are issued
include legal fees, accounting fees, underwriting commissions, and printing
bond issuance costs under GAAPP and IFRS
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
Example on F37
reduce the purchase price by bond issuance cost
discount includes discount + bond issuance cost
*DOES NOT REDUCE FACE- just lump it with discount
if you have bond issuance cost
market rate is not equal to effective interest rate
need to disclose all of this
Bond issuance costs incurred before the issuance of the bonds
deferred on the b/s until the bond liability is recorded
example on f5-38 separate entries for issuance cost and discount
