Ch 10-1 - Journal entries a Issuance of bonds b Interest...

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ACC 311 Ch 10 Reporting and Interpreting Bonds 1. Characteristics of Bonds Payable a. Advantages b. Disadvantages 2. Key Variables a. Principal (Par value, face amount or maturity value) b. Stated rate (face rate or coupon rate) c. Periodic cash interest payments (Principal* Stated rate) d. Term of the bond e. Market rate of interest 3. Calculation of Bond Issue Price a. Present value of Principal b. + Present value of annuity of cash interest payments = Bond Issue price or Cash Proceeds 4. Bonds may be issued at: a. Face value (@100) i. Stated rate = Market Rate ii. Cash proceeds = Principal or Face amount b. At a discount (@<100) i. Stated rate < Market rate ii. Cash proceeds<Principal c. At a premium (@> 100)) i. Stated rate> Market rate ii. Cash proceeds>Principal 5.
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Unformatted text preview: Journal entries a. Issuance of bonds b. Interest payment Dates (Interest expense based on the Effective interest method) c. Year end adjusting entry for accrued interest d. Early Extinguishment of Debt e. Payment of Principal at Maturity 6. Bond Amortization Schedule a. If bond is issued at a Discount i. Interest expense increases over time ii. Amortized discount increases over time iii. Book value or Carrying value increases till it is equal to principal b. If bond is issued at a Premium i. Interest expense decreases over time ii. Amortized premium increases over time iii. Book value or Carrying value decreases till it is equal to principal 7. Financial Statement Disclosures...
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