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FAR 11 Bonds (Properties of Bonds (Rates (Stated/Face/Nominal: rate…
FAR 11 Bonds
Properties of Bonds
Carrying amount: net amount reported on B/S. Face value plus premium or minus discount and minus bond issue costs. Also book value
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Bond Types
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Debenture Bonds: unsecured, no collateral
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Entries
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Accrued Interest from beginning of the year: Buyer responsible for paying upfront bc they will get full interest at next payment.
BIC: deduction from carrying amount, amortized along with discount or premium
If not material, may expense all in the period in which the bonds are sold.
Retirement: Opposite of the entry when sold, IE debit bond payable, remove unamortized premium/discount, bond issue costs etc.
Bond Payable (face)
Premium (unamortized)
Loss (Plug)
BIC
Discount
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Proceeds from Issuance
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Present Value of maturity value, PV of $1 in 10 years
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If question says issued at 101, proceeds were 101% of face value
Convertible bonds
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Book Value method of convering: just like a retirement, but credit the proper amount of common stock, plug is APIC instead of Gain
Market Value method: Common stock and APIC at FMV of the stock when issued, plug Gain
IFRS: amortized cost, NO S/L METHOD
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Practice Question Notes
When you amortize BIC, they are amortized based on the remaining term, not the total term
Correcting prior year mistakes, you must consider if the mistake affected earnings. If so, RETAINED EARNINGS must be adjusted
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