Acctg. ch 9

lessor

A party that has agreed contractually to let another party use its asset for a period at an agreed price.

Discount on Bonds Payable account

Classified as contra-liability

two types of financing

Equity financing and debt financing

Long-term financing w/ debt

Ex. bonds, leases, notes payable

Debenture bonds

It is secured by the faith and credit standing of the issuer.

Capital structure

Mixure of liabilities and stockholders' equity a business uses is called its capital structure

Long-term debt financing

Notes, leases, and bonds

Bonds issued at discount

The stated interest rate is less than the market interest rate

Secured bonds

bonds that are backed by collateral

Debt financing

borrowing $ from creditors (liabilities) *ex. borrow $ from bank

Redeeming a bond before date

could be caused by market interest rates decreased

Long-term liabilities

ex. bonds & leases

Capital Structure

mixture of liabilities/debt and stockholders equity a business uses

Equity financing

obtaining investments from stockholders (s.h. equity) *ex. selling common stock

lesee

one who acquires the right to the possession and use of goods under a lease

Callable bonds

the issuing company can pay off the bonds at any time

Periodic payments on installment notes

typically include : a portion that reflects interest, a portion that reduces the outstanding loan balance

stated rate of interest

used to compute the cash interest paid to bondholders

corporate bond

usually pay interest semiannually

serial bonds

*Bonds that systematically mature over a series of years are called *bonds that mature in installments at regular intervals

common bond features

*Call features are more common than conversion features *Bonds may be issued with both a call and a conversion feature

When signing installment notes payable

*Debit cash *Credit notes payable

lease advantages

*Improved cash flows is a common advantage of acquiring equipment thru leasing *reduce upfront cash *lease is cheaper than installment *lease offers flexibility and cheap when disposing assets *offer protection against risk of depreciation

Which of the following are typically shown in an amortization schedule related to an installment notes payable requiring period payment of interest and principal?

*Interest expense based on the beginning period carrying value and the effective rate of the loan *The cash paid each payment period *The decrease in the carrying value of the note *The carrying value of the note at the end of the period

Amortization schedule related to installment notes payable

includes: *the cash paid each period *the carrying value of the note at the beginning of the period, *the carrying value of the note at the end of the period

Private placement

what its called when you sell bonds to a large pension fund

bonds

*They obligate the issuing company to pay a specific amount *They obligate the issuing company to repay the bonds at a specific date *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 * in a private placement, they may be sold to a single large investor * A corp. that wishes to borrow from general public rather than a bank will issue bonds

Unsecured bonds

*bonds issued against the general credit of the borrower. *Most common type

Term bonds

*bonds that all mature at the same time *Require payment of the full principle amount of the bond at the end of the loan term

Convertible bonds

*bonds that can be exchanged for shares of common stock in the issuing company *more beneficial for lenders because they require a lower interest rate than bonds without conversion feature

lease

*journal: debit lease asset, credit lease payable *contractual arrangement in which an owner provides a user the right to use an asset for a specified period of time.

Installment notes payable

*loans that require periodic payments of interest and principle *when paying portions of it you calculate the carrying value by * principle - (payment - (principle x % interest))

types of bonds

*secured or unsecured *callable *convertible

Market interest rate

*the rate investors demand for loaning funds. *Includes terms like effective interest rate, and yield rate *Varies depending on default risk of the company issuing bonds *Is not the same for each company and is not set by federal reserve board

Sinking funk

An investment fund into which an organization makes payments each year over the life of its outstanding debt