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Present Value 13b - Bonds Flashcards

1
Q

What are other terms for the Market Rate when dealing with Bonds?

A
  1. Real
  2. Yield
  3. YTM
  4. Effective
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1
Q

What are other terms for the Contract Rate when dealing with Bonds?

A
  1. Coupon
  2. Stated
  3. Bond
  4. Face
  5. Nominal
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1
Q

What date is the Market Rate figured on?

A

The Bond Issue Date

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1
Q

What is a Term Bond?

A

A bond in which the entire principle matures at the very end

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1
Q

What is a Serial Bond?

A

A bond where the principle matures throughout the life of the bond

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1
Q

What is a Debenture Bond?

A

An unsecured Bond that is not backed by collateral

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2
Q

What is conversion of debt?

A

The conversion of debt into equity

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3
Q

What are Convertible Debt Securities?

A

Debt Securities that give the buyer the option to convert the investment to SHE

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4
Q

What is a Detachable Warrant?

A

Debt issued stock options

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5
Q

What is Extinguishment of Debt?

A

When a debtor pays a creditor and is relieved of all obligations regarding that debt

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6
Q

What is the Fair Value Option regarding bond issuance?

A

The issuer my elect the FVO instead of recording the bond at it’s issue price

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7
Q

What are two ways to amortize the discount/premiums on Bonds?

A
  1. Straight Line Method

2. Effective Interest Method

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8
Q

When may the Straight Line Method be used?

A

When the interest is immaterial

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9
Q

What is the JE for the Issuer for Bonds issued at a discount?

A

Cash DR
Discount DR
Bonds Payabe CR

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10
Q

What is the JE for the Buyer of Bonds issued at a discount?

A

Bond Investment DR

Cash CR

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11
Q

What type of account is a Discount?

A

Contra Liability

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12
Q

What type of account is a Premium?

A

Adjunct

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13
Q

What is the JE for Interest for the Issuer for Bonds issued at a discount

A

Interest Exp DR
Discount CR
Cash CR

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14
Q

What is the JE for Interest for the Buyer for Bonds issued at a discount?

A

Cash DR
Bond Invest DR
Interest Rev CR

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15
Q

Is the Face Value or Carrying Value shown on the Balance Sheet?

A

Carrying Value

CV = Face Value +- Premium/Discounts

16
Q

Where are Bond Issue Costs shown on the Balance Sheet?

A

Other Assets

17
Q

What are included in Bond Issue Costs?

A

Any cost to get the Bonds ready for issuance

18
Q

How are Bond Issue Costs treated?

A

As a deferred cost and amortized on a Straight Line basis over the life of the bond

Issue Cost/Number of Periods from ISSUE DATE to Maturity Date

19
Q

What is amortization on Bonds for an issuer?

A

Basically, a deferral on the gain of a premium or a deferral on the loss of a discounted bond

20
The term "Discount" can also be used as what?
To take the Present Value
21
How does an issuer calculate Net Proceeds from a bonds issuance?
Bond Face Value +- Premium/Discount - Bond Issue Cost
22
What are two ways to convert Convertible Bonds?
1. Book Value - No Gain/Loss | 2. Market Value - Possible Gain/Loss
23
What is a "Sweetener?"
When companies who issue convertible bonds sweeten the deal for buyers to convert to equity
24
What is a bond sinking fund?
A Savings account where the company accumulates funds in order to pay off the bond principle
25
Where is the Bond Sinking Fund shown on the BS?
Long Term Investment
26
Where are the Bond Sinking Fund requirements listed?
On the Bond Indenture (which is the contract between the bond issuer and buyer)
27
How many years disclosure does the Bond Sinking Fund require?
5
28
How is the Excel PV Formula broken down?
``` Rate = Market Rate Per Period NPER = Number of Periods PMT = Payment/Annuities (should be negative) FV = Principle (should be negative) TYPE = 0 ```
29
When can the FVO be elected?
The date the Bond was bought
30
Do you use the discount or premium when electing FVO?
No
31
Is Effective Interest Method required with FVO?
No
32
What must be disclosed if FVO is elected?
Principle & Fair Value
33
Where do the Gains & Losses go to if the FVO is elected?
Income Statement
34
How can Bonds be classified?
1. Trading - FMV on BS - Unreal -> IS Cont OPS 2. AFS - FMV on BS - Unreal G/L -> OCI 3. HTM - Carrying Value or Amort Cost - No Unreal G/L
35
If the FVO is elected for AFS or HTM, how are they treated?
Just like Trading Securities
36
What is the major difference between IFRS and US GAAP?
1. Conv Bonds affect A, L, & SHE in IFRS where they only affect A & L in US GAAP
37
Is the Fair Value Model applicable to Investment Properties under IFRS applicable to debt securities?
No
38
How can Bonds Issued under IFRS be recorded?
1. Amortized Cost | 2. Fair Value through Profit or Loss
39
Under the Market Value Method, how is the conversion of Convertible Bonds to Common stock recorded?
At the market value of either the stock or bonds, whichever is more reliable. Equity is increased by: Common Stock which equals the Shares x Par Value APIC which equals the Shares x Market Value - Value of the Common Stock The Offsetting entries are: Gain/Loss Face Value of Bond Discount/Premium of Bond
40
Under the Book Value Method, how is the conversion of Convertible Bonds to Common Stock recorded?
Equity is increased by: Common Stock = Carrying Value of Bonds APIC is plugged from the difference between the Common Stock B/P is debited at Face Value Discount/Premium is also debited
41
How do you calculate stock purchase warrants?
Number of warrants x market value | Subtract this from premium offset
42
Discount on Bonds Payable increases what?
Interest Expense each period
43
A premium on bonds payable decreases what?
Interest Expense each period

FAR (28 decks)

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