Section 2...Bonds

Question 1

Bond Discount

Answer 1

Occurs when market rate is greater than stated rate

Question 2

Bond Premium

Answer 2

Occurs when stated rate is greater than market rate

Question 3

Accounting for

Answer 3

Discounts and Premiums are amortized over the life of the bond and are either a debit to Interest Expense (disct) or credit to Interest Expnese (prem). The discount or premium, in additon to UNamortized issuance costs, are included in the carrying value of the bond

Question 4

Calculating Interest Expense

Answer 4

Carrying amount of bond (from beginning of period…i.e. changes every year) x MARKET RATE of interest

Question 5

Calculating Interest Paid

Answer 5

Face value of bond x STATED RATE of interest

Question 6

Amortizing Discount or Premium

Answer 6

Difference between Interest Paid and Interest Expense for the period

Question 7

J.E.

Answer 7

Int Expense (C.V. x Mkt Rate)
Cash (Face amt x Stated Rate)
Bond disct (Plug)

Question 8

Debt increase and stock warrants

Answer 8

Debt increases by price of bond x’s, for example, 101% MINUS stock warrants.

Question 9

Amount rec’d from issuance

Answer 9

Total Bond Price (#of bonds * Face Value * ((1.01 or .99 etc) +
Accrued Interest (Face Value of bonds x’s interest rate x’s time factor ((Issue date))

Question 10

S/L and Disct or Premium relationship

Answer 10

If S/L is used instead of Disct:
Carrying Value is OVERSTATED

Question 11

F.V. reporting

Answer 11

When reporting bonds at P.V., use MKT RATE from P.V. table for BOTH single sum and annuity