What is the effective interest method of amortization Under the effective interest method, a constant interest rate, equal to the market rate at the time of issue, is used to calculate periodic interest expense. Thus, the interest rate is constant over the term of the bond, but the actual interest expense changes as the carrying …
Accounting for bonds issued at a premium To show how to account for bonds issued at a premium, we wül now assume that on January 2, 2020, the Valenzuela Corporation issues $100,000, 5-year, 12% term bonds. Interest is payable semiannually on January 2 and July 1. In this case, however, the bonds are issued when …
As we know, bonds are also issued at other than face value, i.e. above or below their face value. If the prevailing market interest rate is above the stated rate, the bonds will be issued at a discount. conversely, if the prevailing interest rate is below the stated rate, the bonds will be issued at …
Bonds will be issued at par or face value if the stated interest rate equals the prevailing rate for similar investments at the issue date. Because bonds can be issued on an interest date or between interest dates, both cases will be discussed. Bonds Issued on an Interest Date If bonds are issued at par …
Comparison between Secured and Unsecured Bonds Unsecured bonds, called debentures, are issued without any security to back them. Investors purchase them based on the creditworthiness of the company. Some bonds arc secured by the borrower’s collateral or specified assets. These secured bonds are often referred to as mortgage bonds.
Comparison between Coupon and Registered Bonds Some bonds are bearer or coupon bonds. This means that the bonds are not registered in the name of individual holders, but are negotiable by whoever holds them. In order to receive their interest payments, the current holders simply clip off a coupon and redeem it at an authorized …
Term Bonds Definition Term bonds are bonds whose entire principal amount is due at a single date. Most corporate bonds are term bonds. Serial Bonds Definition Serial bonds have principal payments that are required at specific intervals. Serial bonds are often issued by state or local municipalities. Example To illustrate, assume that the city of …
What are Preference Shares? Preference shares form a part of the share capital, but their holders do not possess the same status as ordinary shareholders. Though in theory both ordinary and preference shareholders are owners of the company, preference shareholders cannot claim to be the ‘real’ owners. The following features of preference shares will demonstrate …
What are bonds or debentures? – Definition A corporation or company generally borrow money by means of issuing debentures or bonds. A debenture or bond is a written acknowledgment by a company or corporation of a loan made to it. It is issued to money lenders under the seal of the corporation. It contains a …
Explanation Companies usually used to issue the shares payable by installments. These installments were Application, Allotment, First Call, Second Call and Final Call. If there was only one call, it will not be named as the First Call. The word first, second and final were only used when there was more than one call. When shares …
Explanation and journal entries The undistributed profit of the company or corporation is transferred to Profit and Loss Appropriation account or retained earning. If the directors decided that out of the profit of the corporation a portion may be divided among the shareholders, the journal entry would be: Profit and Loss Appropriation/Retained earning ——————Dr. …
Definition and explanation The shares may a!so be issued at a discount, that is to say at a price less than the face value. It shall be lawful for a company to issue shares at a discount, provided that: The issue of the shares at a discount must be authorized by resolution passed in the …
Definition and explanation Sometimes a company issues its shares at premium, that is to say, at a higher price than the face value, provided there is a public demand for such shares at a higher value. The premium received on issue shares must not be mixed with the share capital but must be credited to separate …
Explanation and Steps The directors on behalf of the company take necessary steps to raise the capital as-soon-as the company gets the certificate of incorporation. These steps„ are briefly, described below: The directors of a. public limited company issue prospectus inviting the public to apply for the purchase of the shares of the company. The …
Shares: The registered capital of a company is divided into fixed number of units. Each of these units is known as a Share. The company issues these shares in order to raise its capital. Types of shares: The shares of a company are of the following types: Ordinary Shares Preference Shares Deferred Shares. Ordinary or Common …
Take a quick Multiple Choice Questions (MCQs) test about Issuance of shares and debenture. These MCQs can help you to prepare for your exams, interviews and different tests. Just click the “start quiz” button and start issuance of shares and debenture MCQs quiz. If you find difficulty in answering these questions, read ‘Issuance of shares and …