Bond

Question 1

How to calculate the accrued interest in between months of payment?

Answer 1

Still use the FV of the bond and then use that number to times the interest rate times the rate of the interest outstanding.

Question 2

FVO of bond accounting

When to make the election?

Answer 2

At date of issuance

Can use straight line method or effective interest method and irrevocable

Question 3

How to record the convertible bond with un-amortized discount /premium at the conversion at book value method?

Answer 3

B/P. (After reduced discount). xx
C/S. xx
APIC. (B/P - C/S) xx

When there are premium in bond, use the CV of the bond

B/P. xx
Bond Premium xx
C/S. xx (only CV of bond / par)
APIC. (B/P+premium - C/S) xx

Question 4

Gain or loss effect under book method and FV method for convertible bonds?

Answer 4

Book value method: Dr. bond payable, Cr. C/S and APIC (bond CV - C/S) and cr discount on bond if there is any

No gains or loss is recorded

Under FV method: dr. CV of bond, cr. C/S at par, and APIC at (FV of stock - Par) do record gain or loss

Question 5

Detachable warrant calculation when only warrant price is known, and when both bond and warrant price is known.

Answer 5

When only warrant value is known

Calculate as:

1. bond w/warrant selling value - warrant value = bond value alone
2. Compare the bond value with bond face value to find discount or premium
3. JE as: dr. Cash and discount, cr. stock warrant and B/P

When both are known, need to reallocate the value to warrant and bond from proceed.

1. Same as step 1 above
2. Find % of 1 to total
3. Use the bond and warrant % * proceeds of bond with warrant

Question 6

JE for warrant that is exercised?

What if it is expired before exercise?

Answer 6

1. Dr. Stock warrant shares * price
   Dr. stock warrant recorded value
   Cr. C/S. Converted shares * par value
   Cr. APIC. The rest

If warrant is expired, record as:
Detachable warrant
contributed capital from expired warrants

Question 7

GAAP and IFRS differences on stock warrant

Answer 7

1. IFRS: when security has both debt and equity component, separate report
2. Total price of the compound security must allocate the debt component first and then the rest to equity

Question 8

When amortized the bond issuance cost, starting the month of amortization at month of issuance, not from the dated month.

Answer 8

What are the months to used as the amortization cost for issuance cost?

Question 9

Bond dated 10/1/05, issued 11/1/05, at 700k plus accrued interest to yield 10%. The Face value of bond is 800K at 8%, interest payable on 4/1/05 and 10/1/05. What is the interest payable on 12/31/05?

Answer 9

One month accrued interest was collected by bond holder at issuance from oct to nov. only nov. 1st to Dec. 31 not collected, so total accrued interest is 800k * .08/ 12 *3 =16K