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What is a bond?
- 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
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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
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These are bonds with a single date of maturity.
Term bonds
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These are bonds with a series of maturity dates or bonds that mature by installments.
Serial bonds
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These are bonds secured by mortgage of real properties.
Mortgage bonds
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These are bonds secured by investemnts in stocks and bonds.
Collateral bonds
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These are bonds without collateral security.
Debenture bonds.
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These bonds require the registration of the name of the bondholder on the boooks of the corporation.
Registered bonds
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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.
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These are bonds that can be exchanged for equity shares of the issuing entity.
Convertible bonds.
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These are bonds that can be called in for payment before the date of maturity.
Callable bonds
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These are bonds issued whereby another party promises to make payment if the borrower fails to do so.
Guaranteed bonds.
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These are high risk and high yield bonds issued by entities that are heavily indebted or otherwise weak financial position.
Junk bonds.
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These are bonds w/c are redeemable in terms of commodities such as oil or precious metals.
Commodity-backed bonds
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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
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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
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These are incremental costs that are directly attributable to the issue of bonds payable
Bonds issue costs or transaction costs
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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
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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
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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
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These are an entity's own bonds originally issued and reacquired but not canceled.
Treasury bonds.
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It is the floating of new bonds payablethe proceeds from w/c are used in paying the original bonds payable.
Bond refunding
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It is the premature retirement of the old bonds payable through the issuance of new bonds payable.
Bond Refunding
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