Chapter 4- Bonds Payable

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Chapter 4- Bonds Payable
2012-12-11 18:47:49

Financial Accounting
Show Answers:

  1. 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
  2. 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
  3. These are bonds with a single date of maturity.
    Term bonds
  4. These are bonds with a series of maturity dates or bonds that mature by installments.
    Serial bonds
  5. These are bonds secured by mortgage of real properties.
    Mortgage bonds
  6. These are bonds secured by investemnts in stocks and bonds.
    Collateral bonds
  7. These are bonds without collateral security.
    Debenture bonds.
  8. These bonds require the registration of the name of the bondholder on the boooks of the corporation.
    Registered bonds
  9. 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.
  10. These are bonds that can be exchanged for equity shares of the issuing entity.
    Convertible bonds.
  11. These are bonds that can be called in for payment before the date of maturity.
    Callable bonds
  12. These are bonds issued whereby another party promises to make payment if the borrower fails to do so.
    Guaranteed bonds.
  13. These are high risk and high yield bonds issued by entities that are heavily indebted or otherwise weak financial position.
    Junk bonds.
  14. These are bonds w/c are redeemable in terms of commodities such as oil or precious metals.
    Commodity-backed bonds
  15. 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
  16. 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
  17. These are incremental costs that are directly attributable to the issue of bonds payable
    Bonds issue costs or transaction costs
  18. 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
  19. 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
  20. 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
  21. These are an entity's own bonds originally issued and reacquired but not canceled.
    Treasury bonds.
  22. It is the floating of new bonds payablethe proceeds from w/c are used in paying the original bonds payable.
    Bond refunding
  23. It is the premature retirement of the old bonds payable through the issuance of new bonds payable.
    Bond Refunding