Accounting for Bonds and Long-Term Notes占债券和长期票据.pdfVIP

Accounting for Bonds and Long-Term Notes Bond Premiums and Discounts Effective interest method Bond issuance Interest expense Types of Debt Instruments Zero-Coupon Bonds Convertible Bonds Detachable Warrants Exchanges for assets or services Installment notes Debt Extinguishment Retirement of Debt prior to Maturity Troubled Debt Restructuring Derivatives - Determination of Hedges Financial Futures Forward Contracts Options Swaps Bond Premiums and Discounts Coupon Rate Determines the amount of the interest payment. Example: if a $1,000,000 face value bond has an annual coupon rate of 6%, the annual interest payment is $60,000. Historical Effective Interest Rate Determines the amount of the interest expense. Example: if a bond has a book (carrying) value of $950,000 and an annual historical effective rate of 7%, the annual interest expense is $66,500. Current Market Yield Determines the current market (fair) value of the bond. Example: A bond has a face value of $1,000,000 and an annual coupon rate of 6% and a 5-year maturity. If the current market yield of the bond is 7%, the value of the bond will be $958,998 (present value of all future payments discounted at 7%). Journal Entries: Assume that Firm A and Firm B issue bonds on 1/1/00 with the first interest payment due on 12/31/00. Firm A Firm B Face Value $1,000,000 $1,000,000 Maturity 10 years 10 years Coupon Rate 8% 8% Effective Rate 7% 9% The bonds have identical cash flow streams: $80,000 p