Bond Sinking Fund Overview

Questions and Answers

What is a bond sinking fund?

Trustee fund that a company contributes money to each year to be able to pay bonds at maturity.

What is the classification of a bond sinking fund on the balance sheet?

Non-current restricted cash.

What components make up the sinking fund balance?

Amount of accumulated deposits 2) Interest/dividend earned.

Periodic payments are calculated by dividing the face amount by the _____ of an annuity rate.

<p>future value</p> Signup and view all the answers

What do you need to determine which future value of an annuity of $1 to use?

<p>Total number of payments</p> Signup and view all the answers

Study Notes

Bond Sinking Fund Overview

A bond sinking fund is a trustee-managed account where a company deposits money annually.
The purpose is to accumulate funds to ensure bonds can be paid at maturity.

Financial Reporting

Bond sinking funds are classified on the balance sheet as non-current restricted cash.
This classification indicates that the funds are not readily available for general business use.

Sinking Fund Balance Details

The sinking fund balance consists of accumulated deposits made by the company.
Interest or dividends earned on the deposited amount also contribute to the balance.

Calculating Periodic Sinking Fund Payments

Periodic sinking fund payments can be calculated using the future value of an annuity formula.
The formula for periodic payments is the face amount of the bond divided by the future value of annuity rate.

Determining Future Value of Annuity

To select the correct future value of an annuity of $1, ascertain the total number of payments that will be made.
Calculate the interest rate by dividing it by the number of payments made annually.

Description

This quiz covers the key concepts of bond sinking funds, including their purpose, financial reporting classifications, and how to calculate periodic payments. Test your understanding of how these funds are managed and reflected in financial statements.