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1Financial Reporting > Module 13b > Flashcards

Module 13b Flashcards

1
Q

What are Bonds Investments?

A

When an individual or company invests money in a bond for an ultimate payday in the future

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2
Q

What is a bonds payable?

A

“When a company issues bonds the amount they owe are maturity are called bonds payable.”

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3
Q

What are some other terms for the Market rate?

A

“The real, yield, YRM, or the effective rate. The going rate for items on the day you issue bonds”

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4
Q

What are some other names for contract rate?

A

“The amount that is printed on the bond what you promise to pay. Also known as coupon rate, stated rate, bond rate, face rate, or nominal rate.

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5
Q

Will the contract rate and the contract rate be the same?.

A

No

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6
Q

If the market rate exceeds the contract rate what will happen?

A

The book value will be less than the maturity rate. There will be a discount on the rate

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7
Q

IF the market rate is less than the contract rate what will happen?

A

“You will have a premium on the market rate which will make up for the contract rate being above the market rate.”

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8
Q

What is a term bond?

A

A bond that matures on a single date

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9
Q

What is a seriel bond?

A

A bond that matures in installments

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10
Q

What is an unsecuried bond called?

A

A Debenture

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11
Q

How do you calculate the interest expense on a bond?

A

BV (book value, not issue amount) of Bonds * Yield rate * Time period

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12
Q

How do you calculate the interest payable on a bond?

A

FV (Face Value) of Bonds * Stated rate * Time Period

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13
Q

If an entity does not elect the fair value option what is done?

A

You record the bond at its issue price and the effecive interest method is used to amoritize any premium or discount on the bond.

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14
Q

To find the PV of the maturity(Bond) value you?

A

Take the amount of the bond * by the market rate (remember to divide if pd more than 1 per year)

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15
Q

To find the PV of the interest value you?

A

Take the implied interest (amount of bond * bond interst amount) and * by the PV of the annuity due

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16
Q

How will the JE’s be reported to the borrower?

A

They will be illustrated at gross including the premium or the discount

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17
Q

How will the JE’s be reported to the investor?

A

They will be illustrated at net (no discount or premium)

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18
Q

What is the compication that arrises of the year end does not concide with the interest dates?

A

and interest receivable should be recognized with the amoritizaiton of the discount or premium”

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19
Q

How are bonds issued costs treated?

A

“They are deferred charges, The proportional share of interst payable and are amoritized on a straight-line basis over the life of the bond. Deferred charge is a debit. It is shown under other assets, but it is not an asset.

20
Q

If a bond is sold at a premium the carrying value would be higher using which Method? Effective, or straightline in years before the end date?

A

Effective carrying value would be higher

21
Q

If a bond is sold at a discount, the carring value would be higher using which method in years before the maturity date? Effective, or straightline?

A

straightline carrying value would be higher

22
Q

What are convertibe bonds?

A

Bonds that can be converted into common stock

23
Q

How do you treat convertible bonds?

A

Basically the same as bonds payable, just put convertible before each item.”

24
Q

What are the 2 methods for treating convertible bonds, if they are converted?

A

book value method and the market conversion method.

25
Q

Under which method for converting bonds is a gain or loss not recorded?

A

Under the book value method

26
Q

What is the typical JE to convert bonds under the book value method?

A

Dr. Bond Payable Dr. Bond Premium Cr. To common stock, cr. Paid in capital in excess of par”

27
Q

What is the typical JE to convert bonds under the market value, assuming market value exceeds book.

A

dr. Loss on redemption. Dr. Bond Payable. Dr. Bond Premium. Cr. Common Stock. Cr. Paid-in excess of par.

28
Q

If bond issuers try to encourage bondholders to convert their bonds to stock how do you treat these “sweeteners” expenses?

A

Expense upon conversion (Ordinary)

29
Q

What are detachable purchase warrants?

A

basically these are stock options that the bondholders can purchase”

30
Q

How do you account for the issuance of detachable purchase warrants and the cash proceeds from them?

A

you would allocate the proceeds between the deby and the stock warrants based on their market values

31
Q

How do you extinguish debt?0

A

you pay the creditor and become relieved of all obligations relating to the debt

32
Q

What is the JE to extinguish debt?

A

Dr (Cr) Loss (Gain). Dr. Bond Payable Dr. Bond Premium. Cr. Unamoritized issue costs. Cr. Bond Discount Cr. Cash”

33
Q

What part of the income statement does the gain/loss appear?

A

It used to be an extraordinary item, however, it is now too common to extinguish debt early and is ordinary gain/loss

34
Q

What is a bond sinking fund?

A

A fund where you start to accumulate the cash to pay off your bonds payable

35
Q

IF you choose to make the fair value election, what day do you make that election?

A

On the day that the entity initially recognizes the item.

36
Q

Is a bond issued with a discount or premium under the fair value option?

A

No

37
Q

What method must an entity calculate its interest expense?

A

There are various methods allowed. The method must be disclosed

38
Q

Where should gains or losses from using the fair value option be disclosed on the financial statements?

A

On the income statement for the current period

39
Q

There are two methods for disclosing financial liabilities on the balance sheet under the fair value method, what are they.

A

1) to disclose the total fair and non-fair value amounts, with a parenthetical disclosure of the amount at fair value. 2) to present two separate line items to displat the carrying values seperatly

40
Q

How are bonds held for trading treated?

A

They are reported at Fair market value. Income is an unrealized holding G/L and be included in Income from continued operations

41
Q

How are bonds held as available for sale treated?

A

They are reported at fair market vlaue. Income is an unrealized holding G/L and wiould be considered other comprehensive income

42
Q

How are bonds held till Maturity treated?

A

They are held at their carrying value, or at amortized cost. There is no unrealized holding G/L

43
Q

Can IFRS elect the fair value election?

A

Yes

44
Q

If the Yield rate is < the Face amount of a bond, what is the result?

A

You have a Bond Premium.

The carrying value will be higher than the carrying value of the bond

44
Q

For IFRS do convertible bonds, bonds with detachable warrants, and other compound instruments have to separate their components of debt and Equity?

A

Yes

45
Q

When the yield rate is greater than the face rate, what is the result?

A

You have a bond discount.

A Discount is also a situation where the carrying value is less than the face value of a Bond

1Financial Reporting (21 decks)

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