Bonds Debt Restructure Flashcards Preview

CPA Exam > Bonds Debt Restructure > Flashcards

Flashcards in Bonds Debt Restructure Deck (23):
1

Any bond that matures in installments

Bonds & Debt Restructuring

2

Any bond that matures on a single date

Bonds & Debt Restructuring

3

A bond not secured by any collateral

Bonds & Debt Restructuring

4

Cash is held in a sinking fund for repayment of bond at maturity

5 years of requirements and maturity details should be disclosed

Bonds & Debt Restructuring

5

Present Value of the principal payment at maturity
+ Present Value of Interest Payments made
: Market Value of Bond Proceeds

Bonds & Debt Restructuring

6

Step 1: PV of $1 @ Yield Rate (not Stated Rate)
x Bond Face Value

PLUS

Step 2: PV of an Ordinary Annuity of $1 for Term @Yield
x (Stated Rate x Face)

Bonds & Debt Restructuring

7

Include Engraving; Printing; Legal; Underwriter; Registration

Debited to a deferred charge account and amortized over life of Bond using S/L

Bond Proceeds - Bond Issuance Costs : Net Bond Proceeds

Time of amortization begins when issued

Bonds & Debt Restructuring

8

Reported at FMV with unreleased gains and losses being included in earnings

Bonds & Debt Restructuring

9

Both discount and premium amortization amounts increase each year

Bonds & Debt Restructuring

10

No gain or loss recognized

APIC is the plug for the difference between the Bond's Book Value and the Par Value of the Common Stock

Bonds & Debt Restructuring

11

Rate on the face of the bond

Bonds & Debt Restructuring

12

Rate that bonds are currently selling for

Bonds & Debt Restructuring

13

Bond will need to sell at a discount in order for buyers to be interested. The difference in market rate vs. the stated is made up by the buyer purchasing the bond for less than par value

Bonds & Debt Restructuring

14

Bond will need to sell at a premium in order for buyers to be interested. The difference in market rate vs. the stated is made up by the buyer purchasing the bond for more than par value

Bonds & Debt Restructuring

15

The total cash that seller receives will be MORE than they normally would (set aside any considerations for premium or discount; they are irrelevant for this point).

Basically; the purchaser of the bonds must give the bond issuer the amount of accrued interest up front.

Bonds & Debt Restructuring

16

When the bonds are issued

Bonds & Debt Restructuring

17

Cash for payment : Stated rate x Face amount

Bonds & Debt Restructuring

18

Interest expense : effective yield x carrying value

Any difference between expense and cash payment is applied as amortization against premium/discount

Bonds & Debt Restructuring

19

Bonds that can be converted to stock

Book value method used if no gain or loss

Market value method used if there is a gain or loss

Bonds & Debt Restructuring

20

Gain or Loss is Ordinary

Extraordinary if both unusual and infrequent

Bonds & Debt Restructuring

21

If terms are modified; and future payments are now less than the carrying amount of the debt; then a Gain is recognized

Bonds & Debt Restructuring

22

Gain recognized:

Difference between cash paid and carrying amount of debt

Difference between non-cash asset given and re-valued at FMV and debt carrying amount

Bonds & Debt Restructuring

23

If future cash flows discounted at loan's Effective Interest Rate are less than Carrying Value:

Effective Rate calculated using original rate; not modified rate

Bonds & Debt Restructuring