chapter 14 intermediate accounting

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detachable stock warrants

A warrant (option to buy common stock at a fixed price) that can be "detached" from the related security (a bond) and traded as a separate security for a specified period of time.

debenture bonds

Bonds that are unsecured (i.e., not backed by any collateral such as equipment). only secured by the "full faith and credit"

Convertible bonds

Bonds that can be converted into common stock at the bondholder's option. they have features of both debt and equity

troubled debt restructuring

Occurs when a creditor grants to the debtor, due to the debtor's financial difficulties, concessions that it would not otherwise consider. A troubled-debt restructuring involves either (1) settlement of debt at less than its carrying amount, or (2) continuation of debt with a modification of terms.

convertible bonds

are retired as a consequence of bondholders choosing to convert them into shares of stock

Sinking fund debentures

bonds that must be redeemed on a prespecified year-by-year basis; administered by a trustee who repurchases bonds in the open market.

callable bonds

bonds that the issuing company can redeem (buy back) at a stated dollar amount prior to maturity. the callable amount must be specified

Bond indenture

describes the specific promises made to bondholders

subordinated debenture

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

serial bonds

retired in installments during all part of the life of the issue

Substance over form

the economic essence of a transaction should prevail over its outward appearance

effective interest method

the effective market rate of interest multiplied by the outstanding balance

coupon bonds (bearer bonds)

to collect interest from a coupon bond, the holder actually clipped an attached coupon and redeemed it in accordance with instructions in the indenture.

early extinguishment of debt

when debt of any type is retired prior to its scheduled maturity date


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