Accounting Ch7 part 3

Accounting Ch7 part 3 - Most bonds are callable bonds the...

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Most bonds are callable bonds – the issuer may pay off the bonds before scheduled maturity date. A call premium usually is paid to bondholders if the bond is called; that is, bondholders receive more than the face amount of the bond because they must reinvest the proceeds, usually at a lower interest rate than was being earned on the called bonds. If bonds are called or redeemed prior to maturity, it is appropriate to write off the unamortized balance of premium or discount as part of the transaction. Ex: early retirement of $100K face amount bond having a BV $95K by redeeming them for $102K. A: (Cash -102K), L: (Bonds Payable -100K, Discount on Bonds Payable +5K), E: (Loss on Retirement of Bonds -7K). The contract between the issuer of the bonds and the bondholders is the bond indenture, and it is frequently administered by a third party, the trustee of bonds – often a bank trust department. Bonds are issued one of two forms: registered bonds and coupon bonds. Debenture bonds are bonds that are secured only by the general credit of the issuer and
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This note was uploaded on 03/02/2011 for the course ACCT 502 taught by Professor Jaggi during the Fall '10 term at Rutgers.

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