Class4-LTD1

Class4-LTD1 - M351 Notes, Class 4: Bonds, pages 671-685...

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M351 Notes, Class 4: Bonds, pages 671-685 Today’s topics What entries are needed at the issuance of a bond? (Here we’ll need to be able to calculate present values for bond that was issued) What entries are needed to record interest? (We’ll need to setup and work through the entire debt amortization table) What if the bond is issued between interest payment dates? What entry is needed for a retirement of debt? (recall gain/loss journal entries A. Forms of bonds: secured or not, term, serial, callable, convertible, commodity, zero coupon (deep discount or zero interest), registered, bearer, income, and revenue. B. Bond terminology: 1. Stated or coupon or nominal or face interest rate multiplied times par, principal, face or maturity amount = amount of one interest payment. 2. Par, principal, face or maturity amount = amount paid at maturity (along with the last interest payment). 3. Discount = amount below par bond sells for at issue; contra account 4. Premium = amount above par bond sells for at issue; adjunct account 5. Unamortized discount—amount of discount not yet amortized 6. Unamortized premium—amount of premium not yet amortized 7. Effective or market interest rate—rate used to discount cash flows to get selling price of bond; rate used to calculate interest expense 1
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C. Selling price of a bond = present value of cash flows bond issuer will make
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This note was uploaded on 12/04/2009 for the course MGMT 351 taught by Professor Staff during the Spring '08 term at Purdue.

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Class4-LTD1 - M351 Notes, Class 4: Bonds, pages 671-685...

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