Both professionally and for the CPA-Exam, we need to understand and be proficient at calculating the concepts for Long-term Liabilities and Bonds, specifically, present value. The areas of concern are the indenture and the elements of debt, like compounding of a 1$ and also of an annuity stream, stated rates of the contract, market rates, yields based upon the effective rates of interest.
Bonds discuss, premiums and discounts, understanding their purpose and amortizations, by carry value in an amortization schedule. The next broad concept area is troubled debt. There we need to understand the elements and journal entries for the extinguishment and for debt restructuring.
The exam requires the journalizing of these concepts. The recent area of testing is Available For Sale (AFS) debt security investments and their associated credit loss calculations and journalization.
Lastly, we need a conceptual understanding of zero coupon and it’s discounting as compared to a stated rate bond. These above all lead to the eventual settlement of the bond debt by conversion or maturity.
About Jerry Pecaro, CPA
Jerry is presently tutoring for FAR and BEC (only).
Jerry Pecaro, CPA & Lead Tutor, is a Certified Public Accountant by profession and in that capacity, has worked as a consultant to the Association of International Certified Public Accountants (AICPA), writing & correcting exam questions in Jersey City, N.J., prior to their moving to the Carolinas.
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