Acctg. ch 9
lessor
A party that has agreed contractually to let another party use its asset for a period at an agreed price.
Discount on Bonds Payable account
Classified as contra-liability
two types of financing
Equity financing and debt financing
Long-term financing w/ debt
Ex. bonds, leases, notes payable
Debenture bonds
It is secured by the faith and credit standing of the issuer.
Capital structure
Mixure of liabilities and stockholders' equity a business uses is called its capital structure
Long-term debt financing
Notes, leases, and bonds
Bonds issued at discount
The stated interest rate is less than the market interest rate
Secured bonds
bonds that are backed by collateral
Debt financing
borrowing $ from creditors (liabilities) *ex. borrow $ from bank
Redeeming a bond before date
could be caused by market interest rates decreased
Long-term liabilities
ex. bonds & leases
Capital Structure
mixture of liabilities/debt and stockholders equity a business uses
Equity financing
obtaining investments from stockholders (s.h. equity) *ex. selling common stock
lesee
one who acquires the right to the possession and use of goods under a lease
Callable bonds
the issuing company can pay off the bonds at any time
Periodic payments on installment notes
typically include : a portion that reflects interest, a portion that reduces the outstanding loan balance
stated rate of interest
used to compute the cash interest paid to bondholders
corporate bond
usually pay interest semiannually
serial bonds
*Bonds that systematically mature over a series of years are called *bonds that mature in installments at regular intervals
common bond features
*Call features are more common than conversion features *Bonds may be issued with both a call and a conversion feature
When signing installment notes payable
*Debit cash *Credit notes payable
lease advantages
*Improved cash flows is a common advantage of acquiring equipment thru leasing *reduce upfront cash *lease is cheaper than installment *lease offers flexibility and cheap when disposing assets *offer protection against risk of depreciation
Which of the following are typically shown in an amortization schedule related to an installment notes payable requiring period payment of interest and principal?
*Interest expense based on the beginning period carrying value and the effective rate of the loan *The cash paid each payment period *The decrease in the carrying value of the note *The carrying value of the note at the end of the period
Amortization schedule related to installment notes payable
includes: *the cash paid each period *the carrying value of the note at the beginning of the period, *the carrying value of the note at the end of the period
Private placement
what its called when you sell bonds to a large pension fund
bonds
*They obligate the issuing company to pay a specific amount *They obligate the issuing company to repay the bonds at a specific date *A formal debt instrument that obligates the borrower to repay a stated amount (referred to as the principal or face amount) at a specified maturity date * in a private placement, they may be sold to a single large investor * A corp. that wishes to borrow from general public rather than a bank will issue bonds
Unsecured bonds
*bonds issued against the general credit of the borrower. *Most common type
Term bonds
*bonds that all mature at the same time *Require payment of the full principle amount of the bond at the end of the loan term
Convertible bonds
*bonds that can be exchanged for shares of common stock in the issuing company *more beneficial for lenders because they require a lower interest rate than bonds without conversion feature
lease
*journal: debit lease asset, credit lease payable *contractual arrangement in which an owner provides a user the right to use an asset for a specified period of time.
Installment notes payable
*loans that require periodic payments of interest and principle *when paying portions of it you calculate the carrying value by * principle - (payment - (principle x % interest))
types of bonds
*secured or unsecured *callable *convertible
Market interest rate
*the rate investors demand for loaning funds. *Includes terms like effective interest rate, and yield rate *Varies depending on default risk of the company issuing bonds *Is not the same for each company and is not set by federal reserve board
Sinking funk
An investment fund into which an organization makes payments each year over the life of its outstanding debt