F11: Bonds & PV Tables

Question 1

What is term bonds?

Answer 1

Face value is repaid on a single maturity date

Question 2

What is serial bond?

Answer 2

Face value is repaid on several dates (installments)

Question 3

What is debenture bond?

Answer 3

Unsecured by collateral

Question 4

What is convertible bond?

Answer 4

• Lender can demand payment via company stock instead of money
• Interest rate is lower than non-convertible debt

Question 5

What is callable bond?

Answer 5

• A borrower can pay off debt early

Question 6

What are other terms for the stated rate?

Answer 6

• Face
• Coupon
• Nominal

Question 7

What are other terms for the effective rate?

Answer 7

• Market
• Yield

Question 8

What is the premium bond?

Answer 8

• Effective Rate < Stated Rate
• Amount received is greater than face, difference reduce interest expense

Question 9

What is the discount bond?

Answer 9

• Effective Rate > Stated Rate
• Amount received is less than the face, difference increase interest expense

Question 10

Journal entry for the issuance of bond

Answer 10

Cash (% Face + Accrued Int – BIC)

BIC (Contra-liability, will be absorbed into discount or premium)

Discount (plug, increased by any BIC)

Bond Payable (Face)

Accrued Int Payable

Premium (plug, decreased by any BIC)

Question 11

Journal entry for the bond retirement

Answer 11

Bond Payable (Face)

Premium (Unamortized)

Loss (plug)

BIC (Unamortized)

Discount (Unamortized)

Cash (Amount to Retire)

Gain (plug)

Question 12

What’s bond sinking fund?

Answer 12

• Non-current till the bonds mature
• Any interest & dividend → Income