CH 5 - Bonds

Question 1

Interest Expense 
1 - define
2 - formula
Interest Accrued 
1- define
2 - formula 
3 - wh is effected

Answer 1

1 -Amount of interest from issuance date to end of YR
2 - MKT interest * time
1 - Amount of interest between bond date and bond issuance
2 - Stated interest * time
3 - only the issuer when receiving cash

Question 2

Interest Expense

Interest Accrued

Answer 2

Amount of interest from issuance date to end of YR

Amount of interest between bond date and bond issuance

Question 3

Bonds payable
1 - amount
2 - interest

Answer 3

1 - value at issuance

2 - only interest EXPENSE is included

Question 4

APIC Warrants Formula

Answer 4

of warrants * FMV

Question 5

Settlement Price
Face Value
Book Value

Settlement > BV

Answer 5

Quoted amount
Actual Sales Price
Actual Purchase Price

LOSS

Question 6

How to find Bonds Payable when only given the FMV of warrants

Answer 6

Warrant/ Warrants + Bonds *FV of Bonds Issued

Question 7

Bonds Sinking Fund Includes

Answer 7

Investments (money used to purchase investments is EXCLUDED)
+ Revenue
- Expenses

Question 8

Does the carrying amount of a bond include accrued interest

Answer 8

No only interest expense, ACCRUED is only for cash receiver to claim interest on the bond

Question 9

Serial Bonds
Term Bonds
Debentures

Answer 9

mature in installments
single fixed maturity dates
UNSECURED corporate bonds

Question 10

Bond Issuance Costs
GAAP
1 - define
2 - when asset is retired before complete amortization

Answer 10

GAAP
Recorded as a liability and expensed and amortized over bond term
2 - reduce CV of bond by unamortized cost

Question 11

Bonds Sinking Fund Includes

Disclosure

Answer 11

Investments (money used to purchase investments is EXCLUDED)
+ Revenue
- Expenses

Aggregate amount for 5 years

Question 12

Bond Carrying amount
1 - accrued interest
2 - interest expense

Answer 12

Includes Premium or discount at date of issuance
1 - no
2 - reduction or addition to bond CV

Question 13

Bond Issuance Costs 
GAAP
1 - define
2 - when asset is retired before complete amortization
IFRS
1 - define

Answer 13

GAAP
Recorded as a liability and expensed and amortized over bond term
2 - reduce CV of bond by unamortized cost
IFRS
1 - entire cost is subtracted from bond CV @ time of issuance

Question 14

Conversion Feature
Reason to convert
GAAP
IFRS

Answer 14

Lower interest rate
GAAP - not recognized until exercised
IFRS - debt and equity are recognized immediately as two separate components

Question 15

Conversion Feature JE GAAP

Stockholders Equity Result

Answer 15

Bond Payable
Discount (CR) Premium (DR)
CS
APIC

Always increasing, APIC is never DEBITED

Question 16

Conversion Feature JE IFRS

Answer 16

Bond Payable
Discount ( CR) Premium (DR)
Gain or Loss PLUG
CS (shares * par)
APIC ( shares converted * (FMV-PAR))

Question 17

What determines bonds selling price

Answer 17

market rate of interest

Question 18

Interest Expense

Interest Payable

Answer 18

CV * yield/MKT

FACE * stated rate

Question 19

Proceeds from sale of bond

Answer 19

Principle * PV of $1 @ MKT INTEREST

interest * PV of an annuity @ MKT INTEREST

Question 20

S/L Premium/ Discount

Answer 20

Discount/ Premium / # of periods

+ or - Face Value of the Bond

Question 21

Premium and Discount effect on
1 - interest
2 - NI

Answer 21

Premium
1 - decreasing
2 - NI is increasing because interest is decreasing

Discount
1 - increase
2 - NI is decreasing because interest expense is increasing

Question 22

Bonds carrying value when warrants are included

Answer 22

Bond issue price - Warrants

Question 23

Bond Cash Received Effects of
1 - BP
2 - Interest
3 - Bond issuance cost

Answer 23

1 - ADD
2 - ADD interest accrued
3 - SUBTRACT bond issuance costs

Question 24

S/L method over effect
Discount
1 - Carrying Value
2 - RE

Opposite for premium

Answer 24

1 - higher

2 - lower

Question 25

IFRS requires bonds to be valued on F/S at

Answer 25

1 - amortized cost

2 - FV through P&L