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About this document
- Pages
- 30 pages
- Price
- $30 one-time, yours to keep
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- Format
- Subject
- Accounting, Finance
- Module
- Chapter 14
This quiz covers bond accounting topics such as bond premium amortization, debt modifications, and troubled debt restructuring. It is useful for students studying Chapter 14 of Intermediate Financial Accounting.
What's inside
- Bond premium amortization
- Debt modifications
- Troubled debt restructuring
- Interest expense calculation
- Gain or loss on debt retirement
Who it is for: Students taking an Intermediate Financial Accounting course. (Undergraduate)
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Summary
Bond accounting is an important topic in intermediate financial accounting. Students learn how to calculate and report bond premiums, interest expenses, and gains or losses on debt retirement.
Effective Interest Rate Method
The effective interest rate method is used to amortize bond premiums and discounts. Interest expense is calculated using the carrying amount of the bonds, the yield rate, and the time period. Cash interest payable is computed using the face value of the bonds, the stated rate, and the time period.
Fair Value Option
Certain financial assets and liabilities can be valued at fair value. Debt modifications are eligible for this valuation. The fair value option is not a requirement, but an election can be made to use it.
Debt Retirement
The gain or loss from retirement of debt is the difference between the cash paid to retire the debt and the debt’s carrying amount. The original proceeds and the present value of the note discounted at the current market rate do not affect the computation of gain or loss on retirement.
Types of Bonds
Serial bonds mature in installments on the same date each year over a period of years. Term bonds mature on a single date. Sinking fund bonds and industrial revenue bonds are examples of serial bonds. Subordinated bonds are an example of term bonds.
Key terms
- Bond Premium
- The amount by which the bond's issue price exceeds its face value.
- Effective Interest Rate Method
- A method used to amortize bond premiums and discounts.
- Fair Value Option
- An election to value certain financial assets or liabilities at fair value.
- Serial Bonds
- Bond issues that mature in installments on the same date each year.
- Term Bonds
- Bond issues that mature on a single date.
- Carrying Amount
- The amount at which an asset is recognised after deducting any accumulated depreciation and accumulated impairment losses.
Questions this document helps with
- How do you calculate the unamortized premium on a bond?
- What is the fair value option for financial assets?
- How do you determine the gain or loss on debt retirement?
Summary written with AI from the document's text.
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