Download PDF by Elizabeth A. Minbiole: Accounting Principles II

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By Elizabeth A. Minbiole

ISBN-10: 0764523600

ISBN-13: 9780764523601

ISBN-10: 0764585657

ISBN-13: 9780764585654

Semesters of accounting are required via so much enterprise, economics, finance, and actuarial technological know-how courses ñ- and on commonplace, there are a few 700,000 scholars taking accounting every year! Are you certainly one of them? CliffsQuickReview Accounting rules II offers every little thing you must speedy comprehend complicated accounting fundamentals ñ- from budgeting to price accounting.

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A market price of 100 means the bond sold for 100% of face value. If its face value is $1,000, the sales price was $1,000. A bond sold at 102, a premium, would 20 CLIFFSQUICKREVIEW LONG-TERM LIABILITIES generate $1,020 cash for the issuing company (102% × $1,000) while one sold at 97, a discount, would provide $970 cash for the issuing company (97% × $1,000). To illustrate how bond pricing works, assume Lighting Process, Inc. issued $10,000 of ten-year bonds with a coupon interest rate of 10% and semi-annual interest payments when the market interest rate is 10%.

A subordinated debenture bond means the bond is repaid after other unsecured debt, as noted in the bond agreement. Bond prices The price of a bond is based on the market’s assessment of any risk associated with the company that issues (sells) the bonds. The higher the risk associated with the company, the higher the interest rate. Bonds issued with a coupon interest rate (also called contract rate or stated rate) higher than the market interest rate are said to be offered at a premium. The premium is necessary to compensate the bond purchaser for the above average risk being assumed.

When the bond matures, the premium account’s balance will be zero and the bond’s carrying value will be the same as the bond’s principal amount. The premium amortized for the last payment should be the balance in the premium on bonds payable account. At maturity, the entry to record the principal repayment is: Date July 1 General Journal Account Title Ref. and Description Bonds Payable Cash Debit Credit 10,000 10,000 Repay bond principal at maturity See Table 2-3 for interest expense and carrying value calculations over the life of the bond using the straight-line method of amortization.

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Accounting Principles II by Elizabeth A. Minbiole


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