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Intermediate Accounting > Chapter 13 > Flashcards

Chapter 13 Flashcards

1
Q

What are bond contracts know as

A

bond indentures

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2
Q

what is a bond indenture

A

a promise to pay a sum of money at designated maturity date, plus interest

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3
Q

what is the typical face value of a bond

A

$1000

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4
Q

What is a secured bond

A

a bond that is backed by a pledge of some sort of collateral

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5
Q

what is an unsecured bond

A

bond not backed by collateral

*usually have very high interest rates

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6
Q

What is a term bond

A

a bond that matures on a single date

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7
Q

What is a serial bond

A

a bond that matures in installments

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8
Q

What is a callable bond

A

a bond that can be redeemed before maturity

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9
Q

what is a convertible bond

A

a bond that is convertible to other things, usually stock

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10
Q

What is a deep discount/zero interest bond

A

bonds that don’t have interest but are sold at a discount

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11
Q

What is a revenue bond

A

a bond where interest is paid from a specified revenue source

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12
Q

what is an income bond

A

a bond that pays no interest unless the issuing company is profitable

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13
Q

What is the stated (coupon or nominal rate)

A

the rate written in the terms of the bond and the amount of interest that will be paid off

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14
Q

what is a market (effective or yeild) rate

A

this is the prevailing interest rate for similar bonds in the market

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15
Q

What are the factors that affect the selling price of the bond

A
  • supply and demand
    -relative risk
    -market conditions and economy
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16
Q

what happens if stated rate < market

A

discount

17
Q

what happens if stated rate > market

A

premium

18
Q

How is the selling price of a bond calculated

A

determining present value of its expected future cash flows

19
Q

how do you calculate the bond interest payment

A

FV X Stated

20
Q

how do you calculate the bond interest expense

A

carrying value X market rate

21
Q

the difference between interest payment and interest expense is?

A

amortization amount

22
Q

what is it called when a company pays bond off before maturity

A

extinguishment of debt

23
Q

what is the amount paid to buy back the bond called

A

reacquisition price

24
Q

when is there a gain on the extinguishment of debt

A

net carrying > requisition price

25
Q

when is there a loss on estinguishment

A

when the net carrying amount is less than reacquisition price

26
Q

What happens when a note is issued at zero bearing interest

A

the discount is amortized to interest expense over the life of the note

27
Q

what is the journal entry to ammortize discount for a zero interest bearing note

A

interest expense
discount on note payable

28
Q

What is a mortgage note payable

A

a note that pledges title to property if not payed

29
Q

what is the journal entry for mortgage installment

A

note payable
cash

interest expense
discount on notes payable

30
Q

What is troubled debt restructuring

A

occurs when the creditors grant concession to the debtor

*usually because debtor cant pay

31
Q

What are the two types of debt restructure

A

1.) settlement of debt at less than the carrying amount
2.) modification of terms

32
Q

What can settlement of debt involve

A
  • transfer of non-cash asset
  • issuance of the debtors stock
33
Q

how would a creditor journalize the settlement of debt - asset exchange

A

asset gained
AFDA
Note Receivable

34
Q

how would a debtor journalize the settlement of debt - asset exchange

A

Note Payable
Loss on Asset
Gain on Restructuring
Asset

35
Q

How would a creditor journalize a settlement of debt - equity interest

A

Equity Investment
AFDA
Note Receivable

36
Q

how would a debtor journalize a settlement of debt - equity interest

A

Note Payable
Common Stock
PIC
Gain on Restructuring

37
Q

What are the possible modifications of terms a creditor can grant a debtor

A

1.) reduction of the stated rate
2.) extension of maturity date
3.) reduction of face amount
4.) reduction or deferral of any accrued interest

38
Q

When does a debtor recognize a gain due to a modification of terms

A

When FCF are greater than Carrying Balance

Intermediate Accounting (11 decks)

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