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Debt

FAR Chapter 17 · Area II · Blueprint II.H

Borrowed money is rarely recorded at its face amount. The price of a bond depends on the gap between the rate it pays and the rate the market wants, and that gap must be spread over the bond's life. The Blueprint asks you to calculate notes and bonds payable with their discounts, premiums and issue costs, to tell a modification from an extinguishment, to account for a troubled debt restructuring, and to compute debt covenants. The effective interest table is the core skill and it is the same table you built for bond investments.

In this chapter

1. Time value of money and the kinds of debt
2. Pricing a bond
3. The effective interest method
4. Issue costs and bonds issued between interest dates
5. Notes payable
6. Extinguishment and modification
7. Troubled debt restructuring: the debtor
8. Debt covenants
9. The debt note: maturities and the carrying amount

This chapter has 9 lessons, 54 practice MCQs with explanations and 21 simulations, plus flashcards and a recall sheet.

What this chapter covers

• Notes and bonds
• discounts, premiums and issue costs
• effective interest
• modification versus extinguishment
• troubled debt restructuring
• covenant calculations

Chapter 16: Payables and accrued liabilities · Chapter 18: Equity