Long-term Liabilities and Bonds Payable

Question 1

The market interest rate is cause my a ______ or _______

Answer 1

premium; discount

Question 2

Nondetachable warrants

Answer 2

a convertible bond must be converted into capital stock

Question 3

Detachable warrants

Answer 3

Bond is not surrendered upon conversion, only the warrants plus cash representing the exercise price of the warrant. The warrants can be bought and sold separately from the bonds

Question 4

Bonds that have a single fixed maturity date. The entire principal is paid at the end of this term/period

Answer 4

term bonds

Question 5

pre-numbered bonds that the issuer may call and redeem a portion by serial number

Answer 5

serial bonds

Question 6

Bonds are usually in denominations of _______

Answer 6

$1000

Question 7

Price is always quoted in _______ for bonds

Answer 7

100’s

Question 8

________ is a contract for purchase of bond

Answer 8

Indenture

Question 9

Equal to the stated interest rate on the bond

Answer 9

coupon rate

Question 10

Check amount (bond interest) =

Answer 10

coupon rate x face

Question 11

Principal payoff is always the full ______ amount

Answer 11

face

Question 12

__________ is the result of buyer and seller “adjusting” the coupon rate to the prevailing market rate of interest

Answer 12

premium/discount

Question 13

A bond is issued at ___ _____ when the stated rate on the bond is equal to the market interest rate on the date the bonds are issued

Answer 13

par value

Question 14

Interest is calculated using the present value of an ______

Answer 14

annuity of $1

Question 15

The principal is calculated using the:

Answer 15

present value of $1

Question 16

2 components that make up the fair value of a bond

Answer 16

PV of future interest payments (at market rate)

PV of principal (at market rate)

Question 17

When the market rate is higher than the coupon rate, a ________ exists

Answer 17

discount

Question 18

JE for an issued bond at a discount (borrower)

Answer 18

DR: cash
DR: discount on bond payable
CR: bond payable

Question 19

JE for an issued bond at a discount (investor)

Answer 19

DR: investment in bonds
CR: Cash

Question 20

When the market rate is lower than the coupon rate, a _______ exists

Answer 20

premium

Question 21

JE for an issued bond at a premium (borrower)

Answer 21

DR: cash
CR: premium on bonds payable
CR: bonds payable

Question 22

JE for an issued bond a premium (investor)

Answer 22

DR: investment in bonds
CR: cash

Question 23

Stated interest rate =

Answer 23

coupon rate

Question 24

effective interest rate =

Answer 24

market rate

Question 25

An unamortized discount is ______ from the face (par) value of the bond to arrive at the carrying value at any particular point in time

Answer 25

subtracted

Question 26

An unamortized premium is _____ to the face (par) value of the bond to arrive at the carrying value at any particular point in time

Answer 26

added

Question 27

Carrying value for a premium bond=

Answer 27

Face + unamortized premium

Question 28

Carrying value for a discount bond=

Answer 28

face - unamortized discount

Question 29

Bond issue costs should be recorded as an ______ (______ _____) and _______ from the date of issuance of the bonds into expense using the straight-line method

Answer 29

asset; deferred charge; amortized

Question 30

Under IFRS, bond issue costs are not recorded as a separate _____. Instead, they are deducted from the carrying value of the liability and amortized using the _____ ____ _____

Answer 30

asset; effective interest method

Question 31

Periodic amortization (straight-line method)

Answer 31

(premium/discount) / # of periods bond is outstanding

Question 32

Interest expense (for discount)=

Answer 32

check amount + amortization

Question 33

Interset expense (for premium)=

Answer 33

check amount - amortization

Question 34

The straight-line is not permitted under _____

Answer 34

IFRS

Question 35

JE to record interest expense for discounted bond (borrower)

Answer 35

DR: bond interest expense CR: discount on bond payable (amortization) CR: cash (check amount)

Question 36

JE to record interest revenue for discounted bond (investor)

Answer 36

DR: cash (check amount) DR: investment in bonds (amortization) CR: bonds interest revenue

Question 37

JE to record interest expense for premium bond (borrower)

Answer 37

DR: bond interest expense DR: Premium on bond payable (amortization) CR: cash (check amount)

Question 38

JE to record interest expense for premium bond (investor)

Answer 38

DR: cash (check amount) CR: investment in bonds (amortization) CR: bonds interest revenue

Question 39

Effective interest method also known as

Answer 39

constant yield method

Question 40

Effective interest method ______ by both GAAP and IFRS

Answer 40

required

Question 41

Interest expense calculation under effective interest method = ___________ and goes on the ______ ______

Answer 41

net carrying value x effective interest rate | income statement

Question 42

Interest paid = _________ and goes on the ______ ______

Answer 42

bond face x coupon rate | balance sheet

Question 43

The difference between the interest expense and the interest paid is the _________

Answer 43

amortization

Question 44

The straight-line has a _________ carrying value over the life of the bond than the effective interest method

Answer 44

higher

Question 45

JE to record the sale of a bond in between interest dates (at a discount)

Answer 45

DR: cash DR: discount on bonds payable CR: bonds payable CR: bond interest expense (for months prior to sale beginning Jan 1)

Question 46

A bond sinking fund is a ______ fund (restricted cash)

Answer 46

trustee

Question 47

A sinking fund is generally a ________ (restricted) asset

Answer 47

noncurrent

Question 48

Serial bonds mature in _______

Answer 48

installments

Question 49

Amortization methods on serial bonds (2):

Answer 49

effective interest method | bonds outstanding method

Question 50

Convertible bonds are often issued at _____ than face value because of the value of the conversion feature

Answer 50

more

Question 51

Under GAAP, the issuance price is allocated to the bonds with __ _______ of the conversion feature, because it is difficult to assign a specific value to the conversion feature

Answer 51

no recognition

Question 52

Conversion of bonds may be recorded under either the:

Answer 52

book value method; market value method

Question 53

Under the book value method, gain and loss is ___________

Answer 53

not recognized

Question 54

The book value method is _______

Answer 54

GAAP

Question 55

The book value method has no _____ _____ impact. Only ____ _____ and ______ are affected

Answer 55

income statement; common stock; APIC

Question 56

Under the market value method, gain or loss is ______

Answer 56

recognized

Question 57

The market value method has an _____ _____ impact

Answer 57

income statement

Question 58

For bonds sold with detachable stock purchase warrants, the warrant is accounted for ________

Answer 58

separately

Question 59

The value assigned to the separate conversion feature is credited to _________

Answer 59

APIC- Warrants

Question 60

JE at issuance of bonds with detachable stock purchase warrants

Answer 60

DR: cash CR: bonds payable CR: APIC- Warrants

Question 61

The ____ ______ ______ is used if only the FV of the warrants is known

Answer 61

warrants only method

Question 62

The ____ _____ ______ is used if the FV of both the warrants and bonds are known

Answer 62

market value method

Question 63

Calculation of the gain or loss for extinguishment of debt

Answer 63

reacquisition price - net carrying amount

Question 64

Gain on loss from extinguishment of debt is normally reported in:

Answer 64

income from continuing operations

Question 65

Gain or loss from extinguishment of debt can possibly be reported as an

Answer 65

extraordinary item