Class notes--Chapter 10A_Accounting for bonds payable

Question 1

What is bonds payable

Answer 1

promise to repay a specified amount at a fixed future date, form of interest bearing note payable

Question 2

why are bonds used

Answer 2

large amounts are dividend into smaller denominations

Question 3

when are bonds payable

Answer 3

at maturity (term bonds)

or

at installment (Serial bonds)

Question 4

where are bonds traded

Answer 4

publically on exchanges

Question 5

what is coupon interest rate

Answer 5

rate determining the amount paid to investors
->specified on the bond, and it determines cash payments

Question 6

what is market/effective interest rate/yield

Answer 6

rate investors demand for loaning funds at any given point in time

Question 7

what are the two different interest rates

Answer 7

coupon rates
market rates

Question 8

what value are bonds issued at (3)

Answer 8

1) at face value
2) below face value (Discont)
3) above face value (premium)

Question 9

if market rate== coupon rate, bond is issues at what rate?

Answer 9

at par, or at face value

Question 10

if market rate> coupon rate, bond is issues at what rate?

Answer 10

below face value/discount

Question 11

if market rate<coupon rate, bond is issues at what rate?

Answer 11

above face value/premium

Question 13

what is future value

Answer 13

the value paid at the end of the bond maturity

Question 14

in a bond time line, what is the value paid at the end called

what is the value paid yearly called

waht is the time zero called

what is the time at the end called

Answer 14

face value/future value

coupon rate/annual interest payment (face value* coupon rate)

issue date

maturity date

Question 15

slide 42

Question 16

what is the present value

Answer 16

price at which the bond is issued

Question 17

should you record present value as negative or positive

Answer 17

positive! ignore the signs

Question 18

the numbers on the powerpoint slides 42-45 for present value are incorrect

Answer 18

double check it online

Question 19

JE for face value bond issues
-discount
-premium

Answer 19

dr cash
cr bonds payable

only thing that changes is the number

Question 20

slide 47

Question 21

how is bond premium or discount ammortized

Answer 21

premiums and discounts amortized using effective interest method

1) calculate bond interest expense
=> carrying amt of bonds at beginning of period * market interest rate

2) calculate bond interest paid
=> face amount of bonds * coupon interest rate
3) calculate amortization amount

FORMULA

(carrying amt of bonds at beginning of period * market interest rate)- ( face amount of bonds * coupon interest rate)= amortizaiton amount

Question 22

if a bond is issued at face value, then

Answer 22

bond interest expense and bond interest paid are equal

Question 23

JE for bond interest payment face value

Answer 23

dr interest expense
cr cash

Question 24

JE for bond interest payment discount

Answer 24

dr interest expense
dr bonds payable
cr cash

Question 25

JE for bond interest payment premium

Answer 25

dr interest expense
dr bonds payable
cr cash

Question 26

for discounted bonds, what is the carrying amount

Answer 26

face value of bonds= unamortized discount

discount balance increases until the bond reaches maturity

Question 27

as you amortize a bond over its life, by the end discount or premium is amortized to>

Answer 27

zero

at maturity, carrying amount=face value

Question 28

what is the carrying amount for premium bonds

Answer 28

carrying amount is face value of bond plus the unamortized premium

premium balance decreases until the bond reaches maturity value

Question 29

can bond be retured at maturity

Answer 29

yes, this is when bonds carrying amount is=to their face value (discount or premium is zero bc of amortization)

Question 30

can bond be retired earlier

Answer 30

yes, by purchasing on the open market

Question 31

JE for rpaying bonds at maturity

Answer 31

Dr bonds paybale
cr cash

Question 32

pressent value is always — than future value

Answer 32

less than

Question 33

what is the difference between present value and future value

Answer 33

interest

Question 34

interest earned in one period on the interest earned in precious years is compound interest

Answer 34

word

Question 35

concept of growing vlaue illustrates==

Answer 35

the time value of money

Question 36

carrying value is always equal to

Answer 36

present value