What is Callable debt (covenant violation)?
In short
Long-term debt that the creditor can demand repayment of at the balance sheet date, for example because a covenant was violated, is classified as current.
Key takeaways
- It stays noncurrent if the creditor waives or loses the right to demand repayment for more than one year from the balance sheet date.
- It also stays noncurrent if a grace period exists and it is probable the violation will be cured within it.
- A waiver obtained after the balance sheet date but before issuance can be considered.
Where it's tested
FAR: Long-Term Debt (Bonds & Notes) — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Bonds with a face amount of $500,000 and an 8% annual coupon are issued for $470,000 when the market rate is 9%. Using the effective interest method, what is interest expense for the first year?