Financial Accounting

Mortgage Bond

A bond secured by real estate.

time value of money

A concept that money available now is worth more than the same amount in the future because of its potential earning capacity

Bonds

A form of interest-bearing notes payable issued by corporations, universities, and governmental entities.

Bond Certificate

A legal document that indicates the name of the issuer; the face value of the bonds, the contractual interest rate; and maturity date of the bonds.

times interest earned

A measure of a company's ability to repay its debt. The number of times over it can pay its interest in a given year. net income + interest expense + income tax expense/ interest expense

Mortgage notes payable

A promissory note secured by a document called a mortgage, which pledges title to property as security for the loan.

sinking funds bond

Bonds secured by a specific assets set aside to redeem them.

straight-line method of amortization

Charging an equal amount of depreciaton expense for a plant asset in each year of useful life

Debenture Bonds

Unsecured bonds, which are issued against the general credit of the borrower (issuer)

Bond Indenture

Legal document containing complete details of a bond issue

Long-term liabilities

Money owned by the business which is not normally due for repayment within the next 12 months.

notes payable

Obligations in the form of written promissory notes

Contractual Interest Rate

Rate used to determine the amount of interest the borrower pays and the investor receives

Current Ratio

THE CURRENT ASSETS DIVIDED BY THE CURRENT LIABILITIES AND A MEASURE OF THE LIQUIDITY OF THE BUSINESS

Maturity Date

The date on which an investment becomes due for payment.

premium (on a bond)

The difference between the selling price and the face value of a bond when a bond is sold for more than its face value.

Debts to assets ratio

compares a company's total liabilities to its total assets.

working capital

A measure of a firm's liquidity / ability to meet day to day expenses. Working capital = Current assets - current liabilities

unsecured bonds

Bonds that are not backed by specific collateral; also called debentures.

Convertible Bonds

Bonds that can be converted into common stock at the bondholder's option

Callable Bonds

Bonds that give the issuer the option to retire them at a stated amount prior to maturity

secured bonds

Bonds that have specific assets of the issuer pledged as collateral.

Face Value

The payment to the bondholder at the maturity of the bond.

Market interest rate

The rate investors demand for loaning funds to the corporation.

effective-interest method of amortization

a method of amortizing bond discount or bond premium that results in periodic interest expense equal to a constant percentage of the carrying value of the bonds.

Discount (on a bond)

the difference between the face value of a bond and its selling price, when a bond is sold for less than its face value