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Questions and Answers
When bonds are callable, who has the option to repurchase the bonds earlier?
When bonds are callable, who has the option to repurchase the bonds earlier?
What happens when bonds are retired by the issuer?
What happens when bonds are retired by the issuer?
In Illustrative Example 7, what was the face value of the bonds that Yakult Company had outstanding?
In Illustrative Example 7, what was the face value of the bonds that Yakult Company had outstanding?
What was the unamortized balance of bond discount for Yakult Company on June 30, 2X19?
What was the unamortized balance of bond discount for Yakult Company on June 30, 2X19?
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How much gain should Yakult report on the early extinguishment of debt in Illustrative Example 7?
How much gain should Yakult report on the early extinguishment of debt in Illustrative Example 7?
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What is the treatment of the difference between the acquisition cost and carrying amount of treasury bonds?
What is the treatment of the difference between the acquisition cost and carrying amount of treasury bonds?
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In Illustrative Example 8, at what premium were the P5,000,000 face value bonds originally issued?
In Illustrative Example 8, at what premium were the P5,000,000 face value bonds originally issued?
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What does it mean when bonds are described as callable?
What does it mean when bonds are described as callable?
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What is the purpose of retiring bonds early?
What is the purpose of retiring bonds early?
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'Treasury bonds are an entity originally issued and reacquired but not canceled'. What accounting procedures does their acquisition call for?
'Treasury bonds are an entity originally issued and reacquired but not canceled'. What accounting procedures does their acquisition call for?
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Study Notes
Types of Bonds
- A convertible bond can be exchanged for the shares of the issuing entity.
- A callable bond can be called in before its maturity.
- A guaranteed bond has another party that promises to pay if the borrower fails to do so.
Measurement of Bonds Payable
- Initially, bonds payable not designated at fair value are measured at fair value less transaction costs.
- If designated at fair value through profit or loss, transaction costs are treated as an expense immediately.
- The fair value of bonds payable is the present value of the future cash payment to settle the bond liability.
Subsequent Measurement
- After initial recognition, bonds payable are measured either at amortized cost using the effective interest method or at fair value through profit or loss.
Bond Issuances
- There are two approaches to accounting for authorization and issuance of bonds: Memorandum Approach and Journal Entry Approach.
- The Memorandum Approach does not require an entry upon authorization, whereas the Journal Entry Approach records authorized bonds payable.
Bond Pricing
- The difference between the bond's face value and present value is either a discount or a premium.
- A bond issued at a premium results in a gain for the issuing entity, while a bond issued at a discount results in a loss.
Callable Bonds
- If bonds are callable, the issuer has the option to repurchase the bonds earlier.
- Once bonds are retired, the issuer eliminates the bond payable liability on its books.
Treasury Bonds
- Treasury bonds are an entity's originally issued and reacquired but not canceled bonds.
- The acquisition of treasury bonds follows the same accounting procedures as a formal retirement of bonds before the maturity date.
- The difference between the acquisition cost and the carrying amount of the treasury bonds is treated as a gain or loss on the acquisition of treasury bonds.
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Description
Test your knowledge on different types of bonds like convertible, callable, and guaranteed bonds, along with the initial measurement of bonds payable according to PFRS 9 Financial Instruments.
