ch 14. bonds and long-term notes

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L

interest accrues as time passes on long-term ___, the requirement of future cash payments, future cash payments are certain/estimable

supplement disclosures

should provide investors and creditors info abt the risk associated w companies' financial obligations

unrealized holding loss (OCI)

Glen Inc. elected to report its bonds at fair value. If the unadjusted carrying value of the bonds is $500,000 and the fair value rises to $515,000 due to the credit risk associated with the bonds, Glen should debit

notes payable

Schulz Company borrows cash from a bank and signs a promissory note. The bank should record

debenture bond

a bond that is secured only by the faith and credit of the issuing corporation

bond indenture

a doc that describes the specific promises made to bondholders

semiannually

although the interest on a bond is often stated as an annual rate, interest is frequently payable

5

as part of the disclosures relating to long-term L, companies should disclose the aggregate amounts payable for each of the next __ yrs

bond yields

bond issues are priced to ___ the market rate; supply and demand influence ___ ___

fair value

bonds payable - publically traded bonds

convertible bonds

bonds that can be exchanged for shares of stock at the option of the bondholder; makes bonds more attractive to investors

open market

bonds that do not include a call provision may be repurchased on the

convertible bonds

bonds that permit bond holders to exchange their bonds for common stock

financing act

borrowing

stock warrants, additional cash, favorable conversion ratios

common methods used by bond issuers to induce bond holders to convert their bonds to common stock are

retire bonds, maturity date

common strategies for debtors to ___ ___ prior to the ___ ___: purchasing bonds on an open market and including a call feature when the bonds are issued

financial reporting

decision makers should consider the chance of recurrence of gains and losses and the existence of "off-balance-sheet" financing arrangement to min their risk

net income

for bonds reported under the fair value option, changes in fair value due to interest rate changes are reported in

present value (PV)

generally, L are valued at their

discount

if a bond issues for 99, this means that the company issued the bond at a

value

if an asset is exchanged for notes payable and the stated interest rate does not closely reflect the market rate at time of negotiation, the market rate should be est w reference to the ___ of the asset/service exchanged

implicit

in situations when the interest rate is not readily apparent, the rate used to measure and account for the transaction should be the ___ interest rate

fair value

info relating to financial instruments that must be disclosed either on the face of the balance sheet or in the notes to the financial statements

investing act

lending

bond(s) payable/L

mirror image of investments in bonds

bonds

most common type of corporate debt

PV of principal and interest payments

notes not traded on market exchanges

corporate issuing bonds

obligated to repay a stated amt at a Specific maturity date and to pay periodic interest between the issue date and maturity

broken into small portions

one of the advantages associated w bonds is that a relatively large amount of debt can be

operating act

paying/receiving interest

effective interest rate

periodic interest expense on L is calculated by multiplying the amount of debt outstanding during the period by the

automobiles, land, buildings

purchases frequently involve installment notes payable

effective interest method

recording interest each period as the effective rate of interest multiplied by the outstanding balance of the debt during the interest period

times interest earned ratio

the company's ability to pay its cost of borrowing and the margin of safety in terms of paying its fixed interest

effective interest rate

the creditworthiness of the company issuing the bonds will affect the company's

default risk

the debt equity ratio can provide information regarding a company's risk that it will be unable to pay its debt when due

PV

the issue price of bonds is calculated as the ___ of all the cash flows required of the bonds

creditworthiness, company

the market rate for a specific bond issue is influenced by the ___ of the ___ issuing the bonds

credit risk

the risk that bondholders will not receive interest and principal payments when due

convertible bonds

to sell the bonds at a higher price, use a medium of exchange in mergers and acquisitions, and enable smaller/debt-heavy companies to gain access to the bond market

debt

type of information must be disclosed related to ___: - nature of the liability - call and conversion options - aggregate amount payable for next 5 yrs - interest rates

bond issue costs

typically are incurred related to both privately placed and publicly sold bonds

periodic payments on installment notes

typically include a portion that reflects interest at the effective interest rate and a portion that reduces the outstanding loan balance

installment notes

typically involve the purchase of assets and periodic payments include principal and interest; require installment payments over time

B/P

valid valuation methods for reporting ___ are the current fair value on each reporting date and the amortized cost


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