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Class 11_18 & 11_22 - Ch 10

Class 11_18 & 11_22 - Ch 10 - Agenda Questions Page...

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Page 1 Questions? Agenda
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Page 2 Terminology Principal (par value, face amount, maturity value) – amount that is paid at the maturity date Coupon interest rate (stated rate, contract rate) – interest rate stated on the bond Market interest rate (effective interest rate, yield) – self-explanatory. Interest rate demanded by creditors. Indenture – bond contract that specifies legal provisions of the bond like maturty date, interest rate, date of interest payments, etc. Bond discount – occurs when the market rate is higher than the coupon rate. Bond premium – occurs when the market rate is lower than the coupon rate. Unsecured Bond – no assets are pledged as a guarantee of repayment. Secured bond – specific assets are pledged as a guarantee of repayment. Callable Bond – bond may be called for early retirement by the issuer. Convertible Bond – bond may be converted to common stock of the issuer. Chapter 10 – Bonds
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Page 3 Bond issued at Par (Issued at 100) Fisher Park Inc. issues bonds to the public on 1/1/09. The following information is printed on each bond: $100,000 bonds 10% interest (payable on December 31) Due: 12/31/11 Issue Date: 1/1/09 The market interest rate for this class of bond is 10% on 1/1/09. Let’s prepare Fisher Park Inc’s journal entries so we can see the impact on Fisher Park’s: a. Balance Sheet – what affect does this have on Fisher Park’s liabilities? a.Income Statement – what affect does this have on Fisher Park’s expenses? b.When does Fisher Park receive cash and how much? When does Fisher Park pay cash and how much? c.Did B/P increase, decrease, or stay the same because of the 12/31/09, 12/31/10, and the first 12/31/11 journal entry? d.Did expenses increase, decrease, or stay the same because of the 12/31/09, 12/31/10, and the first 12/31/11 journal entry?
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