Ch. 14: Bonds and Long-Term Notes

Discount

Arises when bonds are sold for less than face amount

Premium

Arises when bonds are sold for more than face amount

Mortgage Bond

Backed by a lien on specified real estate owned by the issuer.

Bond Indenture

Document that describes the specific promises made to the bondholders. (Held by a trustee, usually a commercial bank)

Bonds

a form of debt consisting of separable units (bonds) that obligates the issuing corporation to repay a stated amount at a specific maturity date and to pay interest to bondholders between the issue date and maturity.

Effective Interest Method

Recording interest each period as the effective market rate of interest multiplied by the outstanding balance of the debt.

Subordinated Debenture

The holder is not entitled to receive any liquidation payments until the claims of other specified debt issues are satisfied.

Debenture Bonds

secured only by "full faith and credit" of the issuing corporation