Accounting 101 Final (Chapter 9)

How is the issue of bonds recorded at par, at a premium (Example: 102), at a discount (Example: 97)?

...

Know the journal entry to record the payment of bond interest.

...

When is a bond issued for a discount or premium?

A bond issued at a price above its face (par) value is said to be issued at a premium, and a bond issued at a price below face (par) value has a discount. Premium on Bonds Payable has a credit balance and Discount on Bonds Payable carries a debit balance. Discount on Bonds Payable is therefore a contra liability account. As a bond nears maturity, its market price moves toward par value. Therefore, the price of a bond issued at a premium decreases toward maturity value. discount increases toward maturity value. On the maturity date, a bond's market value exactly equals its face value because the company that issued the bond pays that amount to retire the bond.

Know what is meant by callable and convertible bonds

Callable: Bonds that may be redeemed or retired before their specified due date Convertible: Bonds that can be converted into common stock at a future time

What is a capital lease? What is recorded in the accounting records for a capital lease?

Capital lease: long-term non-cancelable debt. The rights of the considered property should be recorded on the balance sheet.

Know the difference between current liabilities and long-term liabilities and give examples.

Current liabilities: An obligation that will be satisfied within the next operating cycle or within one year if the cycle is shorter than a year Known Amounts: Accounts payable, short-term notes payable, unearned revenues, accrued expenses Long-term liabilities: Obligations that are net satisfied within 1 year. Leases, bonds

Where does Discount on Bonds Payable appear on the balance sheet? How is it used to calculate the carrying value of a bond.

The credit to Discount on Bonds Payable accomplishes two purposes: It adjusts the carrying value of the bonds as they march upward toward maturity value. It amortizes the discount to interest expense. Long-term liabilities: Bonds payable, 9%, due 2019 (debit) Less: discount on bonds payable (debit discount amt, credit amount paid)