Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

FAR 5 > FAR 5 - Long-Term Liabilities and Bonds Payable > Flashcards

FAR 5 - Long-Term Liabilities and Bonds Payable Flashcards

1
Q

What is interest payable for straight-line amortization? Balance Sheet

A

Interest payable is Bond Face x Coupon Rate

Interest payable is calculated from the date interest was owned since last pay date.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is interest expense for straight-line amortization? Income Statement

A

Bond Face x Coupon +(-) amortization = Interest expense

Interest expense is calculated from the date of issuance.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

How do you calculate straight line amortization?

A

Premium/discount and bond issuance cost / number of periods bond is outstanding.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

How do you calculate straight line amortization for bond discount?

A

Straight line amortization (Discount / number of periods) + (Face x Coupon) = Amount paid.

Amount paid gets added to net carrying value.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are bond journal entries for borrower under straight line amortization for bond discount?

A

1/1/X1

Dr: Cash
Dr: Discount on bond payable
Cr: Bond payable

6/30/X1

Dr: Bond interest expense
Cr: Discount on bond payable
Cr: Cash

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are bond journal entries for investor under straight line amortization for bond discount?

A

1/1/X1

Dr: Investment in bonds
Cr: Cash

6/30/X1

Dr: Cash
Dr: Investment in bonds
Cr: Bond interest revenue

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

How do you calculate straight line amortization for bond premium?

A

Straight line amortization (Premium/ number of periods) - (Face x Coupon) = Amount paid.

Amount paid gets subtracted to net carrying value.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are bond journal entries for borrower under straight line amortization for bond premium?

A

1/1/X1

Dr: Cash
Cr: Premium on bond payable
Cr: Bond payable

6/30/X1

Dr: Bond interest expense
Dr: Premium on bond payable
Cr: Cash

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are bond journal entries for investor under straight line amortization for bond premium?

A

1/1/X1

Dr: Investment in bonds
Cr: Cash

6/30/X1

Dr: Cash
Cr: Investment in bonds
Cr: Bond interest revenue

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Is straight-line amortization GAAP? Is Effective interest method GAAP? What is the purpose of using effective interest method?

A

The effective interest method is GAAP.

The effective interest method amortizes bonds/premiums.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the interest expense in income statement for effective interest method?

A

Net carrying value x effective interest rate = interest expense

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the interest payable in balance sheet for effective interest method?

A

Bond face x coupon rate = interest paid

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is the difference between income statement (interest expense) and balance sheet (interest payable)?

A

Amortization

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

How do you calculate amortization for bond premium/discount effective interest method?

A

1) Beg period net carrying value x amortization rate = interest expense
2) Face x coupon rate = interest payable

Interest expense - interest payable = amortization

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What are the journal entries for borrower under bond premium for effective interest method?

A

1/1/X1

Dr: Cash
Cr: Premium on bonds payable
Cr: Bond payable

6/30/X1

Dr: Bond Interest expense (NCV x effective rate)
Dr: Premium on bonds payable (the amortization amount)
Cr: Cash (the interest payable - face x coupon)

12/30/X1

Dr: Bond interest expense
Dr: Premium on bonds payable
Cr: Cash

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are the journal entries for investor under bond premium for effective interest method?

A

1/1/x1

Dr: Investment in bonds
Cr: Cash

6/30/X1

Dr: Cash (the face x coupon amount you are receiving)
Cr: Investment in bonds (amortization amount)
Cr: Bond interest revenue (NCV x effective rate)

17
Q

What are the journal entries for borrower under bond discount for effective interest method?

A

1/1/x1

Dr: Cash
Dr: Discount on bonds payable
Cr: Bond payable

6/30/X1

Dr: Bond interest expense (NCV x effective rate)
Cr: Discount on bonds payable (amortization)
Cr: Cash (the face x coupon)

12/30/X1

Dr: Bond interest expense
Cr: Discount on bonds payable
Cr: Cash

18
Q

What are the journal entries for investor under bond discount for effective interest method?

A

1/1/X1

Dr: Investment in bonds
Cr: Cash

6/30/X1

Dr: Cash (face x coupon)
Dr: Investment in bonds (amortization)
Cr: Bond interest revenue (NCV x effective rate)

12/30/X1

Dr: Cash
Dr: Investment in bonds
Cr: Bond interest revenue

19
Q

What do you do if there are bond issuance costs in effective interest method?

A

If there are bond issuance costs, reduce cash by bond issuance amount.

Then, add the bond issuance costs to discount and call it (Discount and bond issuance costs).

20
Q

Do you add or subtract amortization to carrying value?

A

If you have premium, amortization is going towards to face SUBTRACT towards face.

If you have discount, amortization is going towards to face ADD towards face.

21
Q

Define Interest Payable?

Define Interest expense

A

Face value of bonds x contractual interest rate = Interest Payable

CV of bonds x effective interest rate = Interest Expense

FAR 5 (7 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions