Beruflich Dokumente
Kultur Dokumente
- Evidenced by:
Bond Indenture – legal contract between the issuer and investor that specifies the
scope and responsibilities of the brrower and other details.
Bond certificate – legal document describing the indebtedness of a borrower and
the terms of payment.
TYPES OF BONDS
- TERM BONDS
o Bonds with a single date of maturity
- SERIAL BONDS
o Bonds with a series of maturity dates; installments
- MORTGAGE BONDS
o Secured by a mortgage on real properties
- COLLATERAL TRUST BONDS
o Secured by stocks and bonds of other corporation
- DEBENTURE BONDS
o Bonds without collateral security
- REGISTERED BONDS
o Require the registration of the name of the bondholder on the books of the corporation
- BEARER BONDS
o Bondholders are not recorded on the books
- CONVERTIBLE BONDS
o Bonds that can be exchanged for shares of the issuing entity
- CALLABLE BONDS
o Bonds which may be called in for redemption prior to the maturity date
- GUARANTEED BONDS
o Another party promises to make payment if the borrower fails to do so
- JUNK BONDS
o High-risk, high-yield bonds issued by entities that are heavily indebted or otherwise in
weak financial condition
Subsequent measurement:
ISSUANCE OF BONDS
Illustration:
Illustration:
INTEREST ON BONDS
On May 31, 2018, an entity issiued bonds with a face amount of 1M and 10% ineterest payable
semiannually on May 1 and October 1.
Cash 50,000
- Accrual of interest
On August 1, 2018, the entity issued 1M 4-yr bonds with a face amount of 1M at 102 that pays
10% semiannually on August 1 and November 1.
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Cash 50,000
[(20,000/4) x 5/12]
On September 1, 2018, the entity issued 1M 4-yr bonds with a face amount of 1M at 102 that
pays 10% semiannually on August 1 and November 1.
Cash 50,000
(20,000/47months x 4)
BOND RETIREMENT
On August 1, 2018, the entity issued 1M 4-yr bonds with a face amount of 1M at 98 that pays
10% semiannually on August 1 and November 1.
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Cash 980,000
8/1/18 70,000
Cash payment:
Accrued interest
Carrying Amount:
Cash 945,000
TREASURY BONDS
- Entity’s own bonds originally issued and reacquired but not cancelled
Illustration:
A 1M bond was originally issued at 105, subsequently,the entity reacquired 500,000 face
amount at 102. At reacquisition, unamortized premium balance is 45,000 and accrued interest is 4,000.
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Acquisition:
Entry:
Cash 555,000
Cash 510,000
Cash 490,000
BOND REFUNDING/REFINANCING
Entry:
1. Cash 1,100,000
Cash 1,040,000
- No amortization
- Any transaction/bond issue cost are expensed outright
- Interest Expense is recognized using the stated/nominal rate
Illustration:
On January 1, 2018, an entity issued a 12% bond amounting to 1M at 103 to yield 10%. Interest
is payable annually on December 31. The entity paid bond issue cost of 50,000. On December 31, 2018,
the fair value of the bonds is decreased by 80,000.
ENTRY:
Cash 50,000
Cash 120,000
Suppose that on December 31, 2018, the fair value of the bonds is increased by 100,000; 80,000 is
attributable to increase in the market interest rate, the remaining is attributable to credit risk.
Note: Credit risk does not include market risks: interest, currency and price risk.
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1. Straight Line
Illustration 1:
On January 1, 2018, an entity issues a 10% bond with a face amount of 1M at 102 that
pays 200,000 yearly for five years.
Table of amortization
Illustration 2: