ACCOUNTING 210 CHAPTER 9

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periodic payments on installment notes typically include

a portion that reflects interest a portion that reduces the outstanding loan balance

the discount on bonds payable account is classified as an

contra - liability

debt to equity ratio

current liabilities divided my total stockholders equity

the debit and credit situation when you retire a bond that was sold on a discount

debit loss and bonds payable credit cash and discount on bonds payable if it was sold on a discount

how to find carrying value of a discount vs premium

discount you add the increase premium you subtract it

bonds will be issued at a premium if the stated interest rate is

greater than the market interest rate

the higher the debt to equity ratio for a company the BLANK the risk of bankruptcy is

higher

installments

loans requiring periodic payments of interest and principle

when deciding to lend or not you should look at

long term liabilities

how to find cash paid

multiplied

the price of a bond includes

the present value of the face amount plus the present value of the periodic interest payments

when the corporation repurchases its bonds from the bondholders, the corporation BLANK the bonds

RETIRED

term bonds

bonds that require payment of the full principle amount of the bond at the end of the loan term

interest expense vs cash paid

interest expense is the CARRYING VALUE times the MARKET INTEREST RATE times fraction of the year cash paid is what it actually sold for times the actual interest rate they agreed to times the fraction of the year

The two components for pricing a bond

interest payments and the repayment of principal when pricing a bond, the present value of the interest payments is added to the present value of the maturity value of the bond

a bond has a stated interest rate at 6% which is 2% above the market interest rate what effect will the two interest rates have on the bond issue price

the issue price will be above the bond's face value

coupon interest rate

the rate interest printed on the face of a bond is referred to as

market interest rate

the true interest rate used by investors to value a bond issue

face value

what you get at the end of the bond sometimes this is the original value but obviously not in the case of a discount or premium

retirement loss

what you have paid (you find this from the table you make) and subtract it from how much it is going to cost to retired

when pricing a bond the BLANK is added to the BLANK

when pricing a bond the present value of the interest payments is added to the present value of the maturity value of the bond

how to find the increase in carrying value and what do you do with it?

you find it by multiplying the old carrying value by the market interest rate and multiplying it by the fraction of the year after that you subtract from the cash paid to FIND THE INCREASE and then you ADD THAT INCREASE TO THE previous carrying value

serial bonds

bonds that mature in installments

identify the characteristics of an annuity

equal time periods between payment dates a series of amounts that are equal

carrying value

face amount of a bond liability less any unamortized bond discount or plus any unamortized bond premium


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