Lesson 2 - Accounting for Bonds Payable
To make journal entry balance (debits=credits)
"plug"
The higher rate is based on the relatively ______________________________ of the corporation or some change in the economy since the bonds payable were originally issued.
low-credit worthiness
Journal entries for recording amortization of a discount have the ____________________________ on Interest Expense as the journal entries for recording amortization of a premium.
opposite effect
The primary objective for amortizing the Discount on Bonds Payable is to _________ the balance in that account to zero by the maturity date on which payment of the principal balance is due.
reduce
The primary objective for amortizing the Premium on Bonds Payable is to __________ the balance in that account to zero by the maturity date on which payment of the principal balance is due.
reduce
The issuers of bonds payable must make interest payments to the investors every _____________________.
six months
The issuers of bonds payable must make interest payments to the investors every ________________________.
six months
The privilege to retire bonds payable early may include a fee of ______________________.
1% or 2%
Interest-bearing debt agreements
Bonds payable
Issued with maturity dates that extend out many years.
Bonds payable
The accounting profession requires any difference between face value of bonds payable and _____________ received to be decreased over the entire life of the bonds payable.
Cash
_________ when issuing bonds payable will normally NOT equal the face value of the bonds payable.
Cash
Representing bonds payable can be purchased or sold on market exchanges by individuals, banks, or other companies.
Certificates
Represents ownership of the corporation
Common stock
Often exercise this privilege to replace older bonds payable with high interest rates with newer bonds payable with lower interest rates.
Corporations
When bonds are retired and you need a credit to balance the journal entry it is called ________________________.
Gain on retirement of bonds payable
When bonds payable are retired and you need a debit to balance the journal entry, it is called ______________________________.
Loss on retirement of bonds payable
Dates by which the principle amount is expect to be repaid
Maturity dates
This process is similar to the calculation of amortization expense for intangible assets.
Straight-line method
T or F: It is rare for the retirement bonds issued at a discount to result in a Gain on retirement of bonds payable.
True
T or F: There is no effect on the amount paid for interest for bonds issued at a premium or issued at a discount.
True
Is it possible for the amount paid in Cash to exceed the amounts for Bonds payable and Premium on Bonds Payable?
Yes
The process of reducing the balance in the Premium on Bonds Payable is called _______________________________.
amortization
If the bonds payable mature in 10 years, then the amount should be ___________________________ every payment date.
amortized
# certificates x $$1,000 face value
bonds payable
Instead of issuing shares of common stock to finance the acquisition of land or the construction of buildings, many corporations choose instead to issue ______________________________.
bonds payable
May be issued for amounts that are equal to, greater than, OR less than their face value
bonds payable
The process of making interest payments and amortizing the premium or discount on bonds payable will continue until maturity of _____________________.
bonds payable
# shares x par value
common stock
ONLY can be issued for amounts equal to or greater than par value
common stock
Often the corporation that issues bonds payable decides to retire them early (pay the principal amount before maturity). This privilege is often granted to the ____________________ as part of the original issuance of the bonds payable.
corporation
Bonds payable usually have a __________________ (similar to par value for common stock) of $1,000 per certificate.
face value
The amount paid is calculated by multiplying the ___________________ of the bonds payable by the state interest rate and then, divide by two (since payments are made twice a year)
face value
The lower interest rate is based on the ____________________________________________ of the corporation or some change in the economy since the bonds payable were originally issued.
high-credit worthiness
MORE risk =
higher rates
The differences usually result from differences in the ____________________________ to be PAID to bondholders versus the interest rates bondholders EXPECT based current market conditions or credit-worthiness of the corporation issuing the bonds payable.
interest rates