标题: Bond liability [打印本页] 作者: sabina 时间: 2011-7-13 16:38 标题: Bond liability
Assume U.S. GAAP (generally accepted accounting principles) applies unless otherwise noted.
At the beginning of the year, a company issues a $1,000 face value, semiannual coupon, bond with an 8 percent coupon rate maturing in 10 years. The annual market rate of interest at issuance was 12 percent. The initial liability recorded for this bond is closest to:
A. $771.
B. $774.
C. $1,000.作者: mnieman 时间: 2011-7-13 16:38
Explain plz.作者: marsilni 时间: 2011-7-13 16:38
if it is the beginning of the year there is no amortization my friend in this country作者: kd26gioi 时间: 2011-7-13 16:38
I don't see how C is correct.... When bonds are issued they recorded on the balance sheet at the discount price and amortized to face value over the life of the bond through the difference of the coupon and interest expense. Where did you find this question?作者: homie 时间: 2011-7-13 16:38
Just plug in the numbers into your calculator and get the PV.作者: siavosh 时间: 2011-7-13 16:38
A -
You record the amount received (PV of this bond = 771) since it is a discount bond and that is the initial liability. The difference btwn the amount received and the face value of the bond is recorded in a contra liability account as someone mentioned above, under US GAAP.作者: Finalnub 时间: 2011-7-13 16:38
A
You record the amount received since it is a discount bond and that is the initial liability. Note that the liability will increase as bond discount is amortized over time up to the par value at maturity.作者: Penny-wenny 时间: 2011-7-13 16:38
Cash
Discount on Bond Payable
Bond Payable
If you wanna journalize that bad boy作者: Bulla564 时间: 2011-7-13 16:38
ANSWER A
The liability recorded is based on market rates of interest when the bond is issued and not the coupon rate on the bond. The market value of the bond at issuance was $770.60. (FV=1,000, PMT=40, N=20, I=6.0).
