Bonds Payable (Flashcards)

When a new bond is issued and the amount received (excluding any accrued interest) is more than the bond’s face amount, the difference is credited to this account and then amortized with a credit to interest
expense over the life of the bonds.

This is a common method for systematically moving bond premium or discount from the balance sheet to the income statement in equal amounts each year.

This is the preferred method to systematically move the discount or premium on bonds from the balance sheet to interest expense. It results in each period’s interest expense correlating exactly with the amount of the bond’s book value (or carrying value).

This is the true interest rate occurring over the entire life of a bond payable after considering the discount or premium on the bonds.

Under the accrual method of accounting, this is the interest that has occurred during an accounting period, including any amortization of discount or premium on bonds payable.

This debit balance in the contra liability account Discount on Bonds Payable is the amount that has not yet been debited to Bond Interest Expense.

This credit balance in the adjunct liability account Premium on Bonds Payable is the amount that has not yet been credited to Bond Interest Expense.

This is the debit balance in the contra liability account Bond Issue Costs that has not yet been debited to Bond Interest Expense.

In the U.S. this indicates a bond that is not secured with a lien.

This legal document contains the covenants and restrictions agreed upon by the issuer and the holder of the bonds.

This type of bond comes due on a single maturity date.

These bonds come due in installments or in a series of maturity dates.

This word means every six months. It is often used when referring to a bond’s interest payment dates.

This is a series of equal amounts occurring at the end of equal time intervals. A bond’s semiannual interest payments can be described as one of these.

This is the result of discounting a bond’s future cash outflows (interest payments and the maturity amount) by the current market interest rate.

This amount is similar to the present value of a bond because it decreases when the market interest rate increases.

This amount (which is printed on a bond) and the stated interest rate are used to calculate the annual amount of interest to be paid by the issuer of the bond.

This amount is printed on a bond and tells the amount that the issuer agrees to pay when the bond comes due.

This interest rate appears on the face of a bond. It is used to compute the amount of interest that the issuer will pay each year. It is occasionally referred to as the coupon interest rate.

This restricted noncurrent asset is sometimes required so that the bond issuer will have a sufficient amount of money to pay the bondholders on the bond’s maturity date.

This type of journal entry is needed for a company that has issued bonds because there will be many accounting periods within a year, but only two interest payment dates.

This feature of a bond requires the bondholder to sell the bond to the issuer at the price specified in the bond indenture.

A bond with this feature can be exchanged by the bondholder for a specified number of shares of the corporation’s stock.

This type of liability account will have a debit balance that is linked with another liability account. An example is Discount on Bonds Payable.

A liability account with a credit balance that is linked with another liability account. An example is Premium on Bonds Payable.

The combination of the balances in the liability account Bonds Payable and the related accounts Discount on Bonds Payable, Premium on Bonds Payable, and Unamortized Bond Issue Costs.

This refers to interest that has been incurred but has not yet been paid as of the date of the financial statements. It exists for bonds payable because interest payments occur only two days per year.

This is the allocation of the amount recorded when bonds were issued for more than their face amount. The allocation will cause the annual interest expense to be less than the annual cash payments for interest.

This is the allocation of the amount recorded when bonds were issued for less than their face amount. The allocation will cause the annual interest expense to be more than the annual cash payments for interest.

This is the allocation of the amount incurred for legal and professional fees when bonds are issued. This allocation will result in a debit to interest expense.

An amount specified in a bond’s indenture that allows the issuer to buy its bonds from the bondholders.

These are the fees paid for legal, accounting, registration, etc. in order to issue bonds. These costs are initially recorded in a contra liability account and then amortized to interest expense over the life of the bonds.

Bonds will be reported in this section of the balance sheet during the year preceding their maturity date unless the corporation has 1) a restricted fund that is sufficient to retire the bonds, or 2) an agreement for refinancing on a long-term basis.

Debt (such as bonds payable) that will not become due until at least one year after the balance sheet date.

An expense that will reduce a U.S. corporation’s taxable income. Interest expense is an example. It has the effect of reducing the net cost of the interest.

This bond is secured with a lien on real estate.

This metric is one hundredth (1/100) of a percentage point of an interest rate such as the difference between 5.65% and 5.64%.

In bond transactions, this is the interest paid by a buyer of a bond to the seller of a bond. It is the interest that has occurred since the issuer’s previous interest payment.