Bonds Accounting Flashcards

Bonds Accounting Flashcards
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Bearer Bond

This type of bond does not have a registered owner. The person who holds the bond can receive payment for it.

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Unsecured Bond / Debenture

These bonds depend on the general credit ranking of the issuer for backing. They are not backed by tangible assets.

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Serial Bond

A bond that does not mature all at once. Instead, these bonds come due in a series of dates, allowing issuers to stagger payments.

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Term Bond

The type of bond that does not mature until a set date has been reached.

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Face Value

We understand this to be a bond's value once it reaches maturity.

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Present Value for Face Value: Formula

Face value can be found using present value with this formula

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Present Value of Discounted Cash Flow: Formula

Present value can be found using this formula

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Discount Rate

This rate represents the required return expected by an investor.

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Weighted Average Cost of Capital (WACC)

This represents what it costs your company to get funds that can be used in investing. It contains the cost of debt as well as equity.

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Hurdle Rate

The smallest return a company will be willing to take for an investment.

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21 cards in set

Flashcard Content Overview

The flashcards in this set can help you go over the characteristics of the following bonds:

  • Term
  • Serial
  • Secured
  • Unsecured
  • Convertible
  • Callable

You can also focus on premium and discount bonds. The factors that lead to early bond retirement at a loss or a gain are also covered by this set. Furthermore, you'll be able to review the importance of the hurdle rate and the discount rate.

Front
Back
Hurdle Rate

The smallest return a company will be willing to take for an investment.

Weighted Average Cost of Capital (WACC)

This represents what it costs your company to get funds that can be used in investing. It contains the cost of debt as well as equity.

Discount Rate

This rate represents the required return expected by an investor.

Present Value of Discounted Cash Flow: Formula

Present value can be found using this formula

Present Value for Face Value: Formula

Face value can be found using present value with this formula

Face Value

We understand this to be a bond's value once it reaches maturity.

Term Bond

The type of bond that does not mature until a set date has been reached.

Serial Bond

A bond that does not mature all at once. Instead, these bonds come due in a series of dates, allowing issuers to stagger payments.

Unsecured Bond / Debenture

These bonds depend on the general credit ranking of the issuer for backing. They are not backed by tangible assets.

Bearer Bond

This type of bond does not have a registered owner. The person who holds the bond can receive payment for it.

Registered Bond

You can only receive payment for this type of bond if you are the one it was issued to. This bond has a title that indicates ownership.

Convertible Bond

Bondholders may end this type of bond before the maturity date has been reached.

Secured Bond

These are bonds that provide financial security to bondholders through the use of some form of collateral.

Callable Bond

A kind of bond that can be terminated before the maturity date is reached by the issuer, not the bondholder. This termination most often occurs due to drops in the market's interest rates.

Recording Bond Repayment Upon Maturity: Steps

Ending a bond in this way requires you to debit the amount from Bonds Payable and to credit the bond amount to Cash.

Bonds: Early Retirement at a Gain

This occurs when a company calls an outstanding bond early and before the full amount has been paid. The amount between the bond principle and the cash paid acts as a gain.

Bonds: Early Retirement at a Loss

We see this when a bond is called early and the cash paid exceeds the bond principle. This extra amount represents a loss on early retirement.

Discounted Bond

We find these bonds when the issuing price is higher than the present value. This means the expected cash flow does not meet the required rate of return.

Premium Bond

A bond with an issue rate that is higher than its value. Companies anticipate that the expected cash flow from these bonds will exceed the expected rate of return.

Find the present value for interest payments of a $10,000 3-year bond that pays $500 annual interest with a discount rate of 12%. Use the present value formulas to complete the calculation.

Formula:

Find the present value for face value of a $10,000 3-year bond that pays $500 annual interest with a discount rate of 12%. Use the present value formulas to complete the calculation.

Formula:

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