Principles of Financial Accounting · free preview
Special Topics in Long-Term Liabilities
Bonds issued between interest dates collect accrued interest from buyers, zero-coupon bonds price deep discounts with no periodic coupons, and the present value machinery behind both appears throughout long-term liability accounting.
1. Issuing between interest dates
Issuing between interest dates
2. Why the split matters
Why the split matters
3. Zero-coupon bonds
Zero-coupon bonds
4. Where present value recurs
Where present value recurs
5. Accrued interest at issuance
A 1,000,000 dollar bond at 8 percent annual interest is issued two months after the last interest date. How much accrued interest does the buyer pay at purchase?
6. Buyer payment split
An investor pays 950,000 dollars bond price plus 13,333 dollars accrued interest at issuance. How does the issuer record the total cash received?
7. Zero-coupon price
A ten-year, 1,000,000 dollar zero-coupon bond is discounted at a 10 percent market rate. Which price is closest to issuance proceeds?
8. Zero-coupon year one expense
A zero-coupon bond was issued at 385,500 dollars when the market rate was 10 percent. Compute year one interest expense under effective-interest amortization.
9. Accrued interest months
A bond pays interest every June 30 and December 31. It is issued on September 1. Compute how many months of accrued interest the buyer pays. Number only.
10. Zero-coupon year one carrying value
A zero-coupon bond is issued at 385,500 dollars and amortizes 38,550 dollars of discount in year one. Compute year-end carrying value in dollars, number only.
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