Bonds

Question 1

Bonds: Calculate discount/ premium

Answer 1

Face value x Present value calculation
Interest payments X Present value of an annuity
Add two results together and subtract the face value = discount/ premium

Question 2

Bond amortization table

Answer 2

On each interest payment date multiply the bond carrying value by the market rate at issuance. This minus the stated interest paid reduces the unamortized discount and increases the carrying value.

Watch out for half year periods that use half the interest rate.

Question 3

Term Bond

serial Bond

Answer 3

Matures on a single date

Matures on multiple dates

Question 4

Interest expense

Answer 4

= the market rate (yield rate) x the carrying value

Question 5

Debenture bonds

Answer 5

Are not secured but rather are backed only by the general credit of the issuing firm.

Question 6

unamortized premium

unamortized discount

Answer 6

= face value plus the unamortized portion

= face value minus the unamortized portion

Question 7

Unamortized premium or discount

Answer 7

is a debit balance and a contra account to the bond payable which is a credit balance at the bonds face value.

Question 8

When computing the selling price of the bond

Answer 8

Present value of face value at the market rate in the table. Plus, the stated rate of interest times the face value times the present value of an annuity at the market rate.
Use half the market interest rate for both if the interest is paid twice a year.

Question 9

Watch the dates when computing an amortization schedule

Answer 9

Make sure you are starting on the date asked for ( that one that started at issuance and interest expense for the first line was $0)

Question 10

Premium on bonds payable and Discount on bond investment are Credit balance accounts.

Answer 10

are Credit balance accounts.