Question

Swingin' Soiree, Inc. is a firm that has its main office on the Right Bank in Paris. The firm just issued bonds with a final payment amount that depends on whether the Seine River floods. This type of bond is known as

Answer 1

Answer:

Catastrophe bond.

Explanation:

A bond is a fixed income instrument that represents the indebtedness of the borrower to the investor or creditor (bond issuer). They're basically loans that are given to large organizations or government.

This ultimately implies that, when an investor or creditor purchases a bond, an agreed amount of money is being borrowed to the issuer as a loan. Consequently, the bond issuer is expected to pay an interest with a return of principal at maturity to the holder (investor or creditor) of the bond.

Hence, bonds payable only arises when a company issues bonds so as to generate cash for its business and plans. Thus, the company is a borrower as the bond issuer while the holder of the bond is a debt-holder (investor or creditor). This further would mean that, the company becomes liable to the investor. Therefore, bonds payable should be recorded on the long-term liability side of the balance sheet being used by the company.

Bonds are issued at par or premium or discount and as such bond issuer records the face value of the bond as bonds payable.

In this scenario, Swingin' Soiree, Inc. is a firm that has its main office on the Right Bank in Paris. The firm just issued bonds with a final payment amount that depends on whether the Seine River floods. This type of bond is known as catastrophe bond.