Effective Interest Method of Amortization

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 …

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Accounting for Bonds Issued at a Discount

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 …

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Coupon versus Registered 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 …

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Term versus Serial Bonds

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 …

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Preference Shares

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 …

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Issue of shares payable by installments

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 …

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Issue of bonus 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.   …

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Procedure for issuance of shares

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 …

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Types of shares in a public limited company

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 …

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Issuance of shares and debenture – MCQs

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 …

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