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- What is a bond? a bond indenture? Why might a trustee be used to administer a bond indenture?
- List and explain some bondholder rights.
- What is the significance of shareholder approval before an issue of bonds?
- How are different bond issues reported in the financial statements of a corporation?
- Three main categories of bond terms are identified in this chapter. Identify these categories and list the major terms of each category.
- What are three reasons why bonds might be redeemed before their maturity date?
- Why would investors pay a premium for a corporate bond? Why would a corporation issue its bonds at a discount? Explain, using the relationship between the bond contract interest rate and the prevailing market interest rate.
- How is an unamortized bond premium or discount disclosed in accordance with GAAP?
- If the bond contract interest rate is greater than that required in the market on the date of issue, what is the effect on the selling price of the bond? Why?
- What are two different methods used to amortize premiums and discounts? Explain.
- How is the interest paid to bondholders calculated? How does this practice affect the sale of bonds between interest dates?
- How is the amortization of bond premium recorded in the accounting records? the amortization of bond discount?
- (Appendix 1) Distinguish between future value and present value. What is the time value of money? Why is it important?
- (Appendix 1) How is the actual price of a bond determined? Give an example.
- (Appendix 2) Explain how the amortization under the effective interest method is calculated. Use an example.
- (Appendix 2) From a theoretical point of view, why is the effective interest method of amortization more acceptable than the straight-line method? Evaluate the usefulness of the effective interest method from a practical point of view.
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