Present Value of Bonds

The accounting treatment for bonds is covered mostly by APB 21, SFAS 157 and SFAS 159. I say mostly because the accounting treatment for bonds is scattered across a few standards. APB 21 covers interest for long-term payables and the presentation of discounts and premiums. The Appendix illustrates the present value concept (we'll go over that shortly). SFAS 157 provides guidance on measuring the fair value of liabilities. (we'll go over that in some detail). SFAS 159 covers the Fair Value Option (I haven't read that, I'll have to come back and edit this). SFAS 47 addresses what should be included in the footnotes about long-term obligations in general. SFAS 91 tells you what should be included in origination costs (most likely everything).

A big thing this section on the CPA exam seems to emphasize is buying bonds between interest payment dates. This involves calculating interest payments (easy), premium/discount (still easy), amortization of the premium/discount (not bad with practice), interest accrual (sucks), and amortization of the interest accrual based on either the interest method or straight-line method (this is why CPAs get paid so much).

The CPA exam also tests on disclosure.

SFAS 47 is pretty easy. In the footnotes, you want to include the balances for sinking fund requirements and outstanding long-term payables for 5 years out. So if the year-end financials are for 12/31/10, you want to include sinking fund balance requirements AND outstanding long-term payables for 12/31/10 through 12/31/14. We'll worry about 12/31/15 next year, but don't skip on 12/31/14.