ACCT 1201 Lecture Notes - Callable Bond, Credit Risk, Convertible Bond

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skyraven864

22 Mar 2013

School

Northeastern University

Department

Accounting

Course

ACCT 1201

Professor

Ronen Gal-or

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Document Summary

Bonds sold at a discount: straight-line amortization, effective-interest amortization. Characteristics of bonds - issued to raise money for long-term purposes. Bond principal, par value, maturity value or face value the amount (a) payable at the maturity of the bond and (b) on which the periodic cash interest payments are computed. Stated (interest) rate, contract (interest) rate, or coupon (interest) rate the rate of cash interest per period stated in the bond contract. Cash interest payment = bond principal * stated rate. Market (interest) rate, effective (interest) rate or yield - the rate of interest currently being demanded by creditors to compensate them for the risks related to bonds (specifically default risk) Default risk - the probability that a bond issuer will not be able to meet the requirements specified in the indenture. Moody"s and standard & poor"s (agencies that evaluate default risk) use letter ratings to specify the quality of a bond.

Related Questions

Complete the below table to calculate the price of a $1.9 million bond issue under each of the following independent assumptions (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.):

1. Maturity 12 years, interest paid annually, stated rate 10%, effective (market) rate 12%

2. Maturity 9 years, interest paid semiannually, stated rate 10%, effective (market) rate 12%

3. Maturity 6 years, interest paid semiannually, stated rate 12%, effective (market) rate 10%

4. Maturity 20 years, interest paid semiannually, stated rate 12%, effective (market) rate 10%

5. Maturity 10 years, interest paid semiannually, stated rate 12%, effective (market) rate 12%

Maturity 12 years, interest paid annually, stated rate 10%, effective (market) rate 12%. (Round your answers to the nearest whole dollar.)

Table values are based on:
n =
i =
Cash Flow	Amount	Present Value
Interest
Principal
Price of bonds

goldarmadillo620

E14-11.

(Information Related to Various Bond Issues)

(LO 1) Karen Austin Inc. has issued three types of debt onJanuary 1, 2017, the start of the company's fiscal year.

(a)$10 million, 10-year, 15% unsecured bonds,interest payable quarterly. Bonds were priced to yield 12%.

(b)$25 million par of 10-year, zero-couponbonds at a price to yield 12% per year.

(c)$20 million, 10-year, 10% mortgage bonds,interest payable annually to yield 12%.

Instructions

Prepare a schedule that identifies the following items for eachbond: (1) maturity value, (2) number of interest periods over lifeof bond, (3) stated rate per each interest period, (4)effective-interest rate per each interest period, (5) paymentamount per period, and (6) present value of bonds at date ofissue.

orangewallaby123

Exercise 10-19A on page 571

On January 1, 2016, the Diamond Association issued bonds with aface value of $300,000, a stated rate of interest of 6%, and a10-year term to maturity Interest is payable in cash on December 31of each year. The effective rate of interest was 7% at the time thebonds were issued. The bonds sold for $278,932. Diamond used theeffective interest rate method to amortize the bond discount.

Determine the amount of the discount on the day of issue.

Determine the amount of interest expense recognized on December31, 2016.

Determine the carrying value of the bond liability on December31, 2016.

Provide the general journal entry necessary to record theDecember 31, 2016, interest expense.

oliveporcupine507

ACCT 1201 Lecture Notes - Callable Bond, Credit Risk, Convertible Bond

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