A formal unconditional promise, made under a seal, to pay a specificed sum of money at a determinable future date, and to make periodic interest payments at a stated rate until the principal sum is paid.
A contract of debt whereby one party called the borrower or issuer borrows funds from another party called the investor or bondholder
What is a bond indenture or deed of trust?
A document w/c shows in detail the terms of the bond and the rights and duties of the borrower and other parties to the contract
These are bonds with a single date of maturity.
Term bonds
These are bonds with a series of maturity dates or bonds that mature by installments.
Serial bonds
These are bonds secured by mortgage of real properties.
Mortgage bonds
These are bonds secured by investemnts in stocks and bonds.
Collateral bonds
These are bonds without collateral security.
Debenture bonds.
These bonds require the registration of the name of the bondholder on the boooks of the corporation.
Registered bonds
These are bonds in w/c the name of the bondholder is not registered. Accordingly, interset is paid periodically to bearer of the bonds or the person submitting a detachable interest coupon.
Coupon or bearer bonds.
These are bonds that can be exchanged for equity shares of the issuing entity.
Convertible bonds.
These are bonds that can be called in for payment before the date of maturity.
Callable bonds
These are bonds issued whereby another party promises to make payment if the borrower fails to do so.
Guaranteed bonds.
These are high risk and high yield bonds issued by entities that are heavily indebted or otherwise weak financial position.
Junk bonds.
These are bonds w/c are redeemable in terms of commodities such as oil or precious metals.
Commodity-backed bonds
Explain a premium on bonds payable.
Sales price > Face value
gain: issuing entity or borrower because it receives more than what is obligated to pay under the bond issue
obligation of the borrower is limited only to the face value of the bonds
DR:Premium on bonds payable
CR:Interest Expense
Explain a discount on bonds payable.
Sales price < Face value
loss: issuing entity or borrower bec. it receives less than what is obligated to pay (face value)
DR:Interest Expense
CR:Discount on bonds payable
These are incremental costs that are directly attributable to the issue of bonds payable
Bonds issue costs or transaction costs
Give examples of BIC
printing and engraving cost
legal and accounting fee
registration fee w/ regulatory authorities
commission paid to agents and underwriters
other similar charges
What is the treatment for BIC?
amortized over the life of the bond issue in a amanner similar to that used for discount onm bonds payable
Explain the measurement of bonds payable
After initial recognition, BP shall be measured at amortized cost using EIM
discount on BP and BIC=deduction from BP
premium on BP=addition to BP
These are an entity's own bonds originally issued and reacquired but not canceled.
Treasury bonds.
It is the floating of new bonds payablethe proceeds from w/c are used in paying the original bonds payable.
Bond refunding
It is the premature retirement of the old bonds payable through the issuance of new bonds payable.