Long-Term Liabilities: Bonds Overview

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is a bond?

A bond is a type of debt security that represents a loan made by an investor to a borrower (typically a company or government).

What is a bond's face value?

The face value, or par value, of a bond is the amount of money that the issuer will repay to the bondholder at maturity.

What is a bond's contract rate?

The contract rate, also known as the coupon rate, is the stated interest rate on a bond.

What are the advantages of issuing bonds over stock?

Issuing bonds offers several advantages over issuing stock, such as providing a stable source of long-term financing, having a fixed interest payment, and not diluting ownership of the company. Signup and view all the answers

How is the interest paid to stockholders calculated?

Interest on bonds is calculated by multiplying the contract rate by the bond's face value. Signup and view all the answers

What does it mean if a bond is sold at par value, at a discount, at a premium?

A bond sold at a premium means the bond is sold for more than its face value. (A), A bond sold at par value means the bond is sold for its face value. (B), A bond sold at a discount means the bond is sold for less than its face value. (C) Signup and view all the answers

How is a bond discount calculated?

A bond discount is calculated as the difference between the face value of the bond and the price at which it was sold. Signup and view all the answers

How is a bond premium calculated?

A bond premium is calculated as the difference between the price at which the bond was sold and its face value. Signup and view all the answers

What is the journal entry to record the sale of a bond at par, at a discount, at a premium?

The journal entry for the sale of a bond at par, at a discount, or at a premium will depend on the specific circumstances. Signup and view all the answers

What is bond discount amortization?

Bond discount amortization is the process of gradually reducing the discount on bonds payable over the life of the bond. Signup and view all the answers

What is bond premium amortization?

Bond premium amortization is the process of gradually reducing the premium on bonds payable over the life of the bond. Signup and view all the answers

What is a bond's carrying value?

A bond's carrying value represents the adjusted value of the bond on the balance sheet after taking into account any discounts or premiums. Signup and view all the answers

How do you calculate bond interest expense (the cost of issuing the bond)?

Bond interest expense is calculated using the effective interest method, which involves multiplying the carrying value of the bond by the market interest rate at the time of issuance. Signup and view all the answers

What is the journal entry to record a bond's interest expense for a bond sold at a discount? The journal entry for a bond sold at a premium?

The journal entry for recording interest expense on a bond sold at a discount or a premium will involve debiting Interest Expense and crediting Cash for the amount of interest paid. Signup and view all the answers

How do you calculate the gain or loss on the retirement of a bond?

The gain or loss on the retirement of a bond is calculated as the difference between the carrying value of the bond and the amount paid to retire it. Signup and view all the answers

What is the journal entry to record the retirement of a bond before its maturity date?

The journal entry to record the retirement of a bond before its maturity date will involve debiting Bonds Payable for the face value of the bond, crediting Cash for the amount paid to retire the bond, and debiting or crediting Discount on Bonds Payable or Premium on Bonds Payable to adjust for any remaining discount or premium on the bond. Signup and view all the answers

What is an installment note?

An installment note is a loan that is repaid in equal periodic payments, typically over a specified period of time. Signup and view all the answers

What is the journal entry to record the issuance of a notes payable?

The journal entry to record the issuance of a notes payable will involve debiting Cash for the amount received and crediting Notes Payable for the face value of the note. Signup and view all the answers

What is the journal entry to record the first payment on an installment note?

The journal entry to record the first payment on an installment note will involve debiting Interest Expense for the amount of interest accrued, debiting Notes Payable for the amount of principal paid, and crediting Cash for the total amount of the payment. Signup and view all the answers

What is a mortgage?

A mortgage is a loan secured by real estate property. Signup and view all the answers

What is par value?

Par value represents the original or stated value of a security, typically a bond or stock. It's the face value of the bond and the price at which it's initially issued. Signup and view all the answers

How do you calculate carrying value?

The carrying value is calculated as the face value of the bond, minus any unamortized discount, or plus any unamortized premium. Signup and view all the answers

What is the meaning of bond's maturity date?

The maturity date of a bond is the date on which the principal amount of the bond is due to be repaid by the borrower to the bondholder. Signup and view all the answers

What is the meaning of bond's contract rate?

The contract rate, also called the coupon rate, is the fixed interest rate that the borrower agrees to pay to the bondholder throughout the life of the bond. Signup and view all the answers

What is the meaning of bond's market value?

The market value of a bond is the price at which it is currently being traded in the financial markets. Signup and view all the answers

What is straight-line amortization?

Straight-line amortization is a method used to allocate the discount or premium on a bond evenly over the life of the bond. Signup and view all the answers

What is the meaning of long-term notes payable?

Long-term notes payable are liabilities that are due to be repaid over a period of more than one year. Signup and view all the answers

What is the meaning of installment notes?

Installment notes are a type of loan that requires regular payments over a specified period, with each payment typically including principal and interest. Signup and view all the answers

What is the meaning of mortgage?

A mortgage is a type of loan secured by real estate, typically used to purchase a home or other property. Signup and view all the answers

Flashcards

Bond

A bond is a fixed-income investment representing a loan made by an investor to a borrower.

Par Value

Par value is the face value of a bond, paid back at maturity.