ACCOUNTING 210 CHAPTER 9
periodic payments on installment notes typically include
a portion that reflects interest a portion that reduces the outstanding loan balance
the discount on bonds payable account is classified as an
contra - liability
debt to equity ratio
current liabilities divided my total stockholders equity
the debit and credit situation when you retire a bond that was sold on a discount
debit loss and bonds payable credit cash and discount on bonds payable if it was sold on a discount
how to find carrying value of a discount vs premium
discount you add the increase premium you subtract it
bonds will be issued at a premium if the stated interest rate is
greater than the market interest rate
the higher the debt to equity ratio for a company the BLANK the risk of bankruptcy is
higher
installments
loans requiring periodic payments of interest and principle
when deciding to lend or not you should look at
long term liabilities
how to find cash paid
multiplied
the price of a bond includes
the present value of the face amount plus the present value of the periodic interest payments
when the corporation repurchases its bonds from the bondholders, the corporation BLANK the bonds
RETIRED
term bonds
bonds that require payment of the full principle amount of the bond at the end of the loan term
interest expense vs cash paid
interest expense is the CARRYING VALUE times the MARKET INTEREST RATE times fraction of the year cash paid is what it actually sold for times the actual interest rate they agreed to times the fraction of the year
The two components for pricing a bond
interest payments and the repayment of principal when pricing a bond, the present value of the interest payments is added to the present value of the maturity value of the bond
a bond has a stated interest rate at 6% which is 2% above the market interest rate what effect will the two interest rates have on the bond issue price
the issue price will be above the bond's face value
coupon interest rate
the rate interest printed on the face of a bond is referred to as
market interest rate
the true interest rate used by investors to value a bond issue
face value
what you get at the end of the bond sometimes this is the original value but obviously not in the case of a discount or premium
retirement loss
what you have paid (you find this from the table you make) and subtract it from how much it is going to cost to retired
when pricing a bond the BLANK is added to the BLANK
when pricing a bond the present value of the interest payments is added to the present value of the maturity value of the bond
how to find the increase in carrying value and what do you do with it?
you find it by multiplying the old carrying value by the market interest rate and multiplying it by the fraction of the year after that you subtract from the cash paid to FIND THE INCREASE and then you ADD THAT INCREASE TO THE previous carrying value
serial bonds
bonds that mature in installments
identify the characteristics of an annuity
equal time periods between payment dates a series of amounts that are equal
carrying value
face amount of a bond liability less any unamortized bond discount or plus any unamortized bond premium