Review

Inventory-> Use Cost acquired/Net Realizable (whichever is lower)

Outstanding Cheques: written but bank hasnt cleared yet
Bonds are purchased by other parties at par, discount, or premium
o Face value: principal to be repaid
o Coupon rate: fixed % of principal paid as interest (% stated as annually but can be semi,
quart, etc)
o Maturity date : when company pays last interest + principal to lender (usually long time
ie. 30 years)
Types
o Secured: assets are pledged to guarantee repayment (ie. Stocks)
o Debentures/ Unsecured: no pledged assets
o Callable: bond may be called for early retirement by the issuer
o Convertible bonds: may be converted to other securities (usually common shares)
Price of bond issued depends on current market interest rate
o Price of bond= PV of all coupon payments + PV of principle
o PV of principle= P (1+i)n (or P*PV of $1)

o PVA= interest payment per period *

Issue at Discount if Coupon rate < market rate
o Cash
XXX
Discount on B/P
XXX (contra liability)
Bond Payable
XXX
o Interest Exp
XXX
Discount on B/P
XXX
Bond Interest Pay/Cash XXX
Issue at Premium if Coupon rate > market rate
o Cash
XXX
Premium on B/P
XXX (liability)
Bond Payable
XXX
o Interest Exp
XXX
Premium on B/P
XXX
Bond Interest Pay/Cash XXX
Throughout life of bond, discount/ premium needs to be amortized (so $0 when matures)
1. Straight line Depr.

Amortization per period=

2. Effective Interest
Total Interest expense= Interest rate per period* Net book value (Bond issue
price)