Chapter 15 Bond Basics Quiz

Financial Accounting Chapter 15

• This chapter covers non-current liabilities, specifically bonds payable and notes payable.
• Key learning goals include understanding debt financing, comparing debt and equity financing, and accounting for bonds payable.
• Non-current liabilities are debts not due within one year or the normal operating cycle.
• Common types include bonds payable and notes payable.
• Bonds payable involve bond basics, accounting for bond issues, and retirements.
• Notes payable include fixed principal payments and blended payments.
• Success criteria for the chapter include comparing debt and equity impact, handling bonds payable, and understanding note payable accounting.

Textbook Reading

• Students must review pages 628-629 and answer associated questions regarding non-current liabilities.

Bond Basics

• A board of directors approves bond issuance.
• Face value is the amount due at maturity.
• Coupon rate is the contractual interest used for calculating interest received.
• Usually an annual rate, paid semi-annually.
• Maturity date is when the final payment is due.
• Bond details are included in the certificate.
• Like shares, bonds trade on organized security exchanges.
• Bonds are commonly issued with small denominations (e.g., $1,000).

Determining Market Value of Bonds

• Present value is the amount invested today at a specific interest rate over a certain time.
• Market value (present value) is determined by three factors: dollar amounts to be received, length of time until received, market interest rates.
• Present value tables/formulas are used for determining present value.

Issuing Bonds at Face Value

• If market interest rate = contractual rate, bonds are issued at face value.
• This involves journal entries for cash and bonds payable to record the bond sale.
• Effective-interest method is used for recording semi-annual interest payments.

Textbook Questions

• Specific textbook questions referenced include BE15-2, E15-1, BE15-5, BE15-5b, BE15-5c, E15-3, E15-4.

Amortizing Bond Discount/Premium

• Explained as a three-step process and details are provided on how to calculate bond interest paid, calculate interest expense, and determine amortization amount.
• Subsequent periods use a similar calculation method for the discounted bond.
• In the premium calculation method, the carried amount of the bond decreases over time.

Group Work Questions

• Specific group-related questions and assigned individuals for review are provided. Group assignments include BE15-8, BE15-9, BE15-10, and E15-6.

Installment Notes Payable

• Similar to short-term notes payable, but the term exceeds one year.
• Interest can be fixed or variable.
• Secured notes are like mortgages (secured by assets).
• They're repaid in instalments consisting of principal plus interest, either fixed or blended.

Notes Payable: Fixed Principal Payments

• Periodic payments vary due to changing interest owed.
• Principal is repaid equally across periods.
• Interest is based on the outstanding principal balance.

Notes Payable: Blended Payments

• Equal periodic payments include principal and interest.
• Interest and principal amounts change with each payment.
• Interest decreases, and principal increases with each period.

Statement Presentation

• Non-current liabilities are reported separately after current liabilities on the balance sheet.
• Specific examples are given of how to present balance sheets (such as Wick Company LTD's).

Textbook Review Questions

• Review questions are listed.

Textbook Questions (Additional)

• Further textbook questions are detailed.