Chapter 9 : Accounting

A discount is issued when..

market rate > Stated Rate

Debt to equity ratio

= Total Liabilities / Total Stockholders Equity The lower the better

Convertible

Bonds are retired when the bondholder exchanges them for the issuing company's stock

greater than the market interest rate

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

Characteristics of an Annuity

(1)A series of amounts that are equal (2)Equal time periods between payment dates

Identify two ratios commonly used to assess a company's financial risk.

(1)Debt to equity ratio (2) Times interest earned ratio

A premium is issued when

Market Rate < Stated Rate

Serial Bonds

Mature in installments

Term Bonds

Mature on a specific Date Payment of the full principal amount of the bond at the end of the loan term

Semiannually

Most corporate bonds pay interest

Characteristics of Bonds

Secured Unsecured Convertible Callable

Secured Bonds

Supported by a specific assets the issuer pledges as collateral

Callable Bonds are redeemable by

The Bond issuer

Face Amount, Discount, And Premium

The carrying value at maturity is equal to the face amount of bonds issued at:

Bond

A formal debt instrument that obligates the borrower to repay a stated amount (referred to as the principal or face amount) at a specified maturity date can be a note or a(n)

Covertable Bonds

Allow the lender to convert each bond into common stock

Times Interest Earned Formula

Earnings before interest an taxes / Interest Expense

A single large Investor

In a private placement of bonds, bonds may be sold to

Long-Term Debt

In order to assess a company's financial risk, investors and creditors frequently consider and analyze the company's:

Contra-Liability

The discount on Bonds Payable account is classified as a

Default Risk

The possibility that a company will be unable to pay its bonds payable and the related interest when due is commonly referred to as:

Stated Rate

The rate of interest that is used to compute the cash interest paid to bondholders

Installment Notes

Loans requiring periodic payments of interest and principle are referred to as

Market interest rates decreased

A common reason for redeeming a bond prior to its maturity date is that