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Intermediate Accounting > 3 - Bonds Payable & Other Concepts > Flashcards

3 - Bonds Payable & Other Concepts Flashcards

1
Q

Long-term debt instruments similar to notes & loans but are usually offered to the public and sold to many investors

A

Bonds

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2
Q

Any contract that represents right to receive cash from issuer to the holder.

A

Debt instrument

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3
Q

A debt instrument represents what kind of relationship between entities?

A

Debtor-creditor relationship

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4
Q

Contractual arrangement between issuer and bondholders that contains restrictive covenants to prevent issue from taking actions contrary to interests of bondholders.

A

Bond indenture

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5
Q

Appointed to ensure the compliance of restrictive covenants in the bond indenture

A

Trustee (often a bank)

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6
Q

Bond Indenture specifications:

A

a. Rights & duties of bondholders and issuer
b. Restrictions and requirements on the issuer
c. Interest rate, payment dates, and maturity dates

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7
Q

Rights & duties of bondholders and issuer have the following:

A
  1. Call provision
  2. Redemption rights
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8
Q

Issuer’s right to call the bonds before maturity

A

Call provision

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9
Q

Holder’s right to redeem the bonds

A

Redemption rights

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10
Q

Restrictions and requirements on the issuer has the following:

A
  1. Sinking funds
  2. Financial rations
  3. Restriction on dividends available to the shareholders
  4. Restriction on incurrence of additional obligations
  5. Appointment of independent trustee
  6. Authorized amount
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11
Q

Issued to bondholder representing amount of bonds that has been purchased

A

Bond certificate

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12
Q

Bonds are usually issued in small denominations, why?

A

To increase affordability of bonds

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13
Q

Bonds can be issued in several ways:

A
  1. Underwriting
  2. Auction
  3. Direct placement
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14
Q

Agrees on the price, pays issuer, and resells at higher price

A

Underwriter

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15
Q

Mature on a single date

A

Term bonds

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16
Q

Principal matures in installments

A

Serial bonds

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17
Q

Have more than one maturity and permits investors to choose maturity dates that meet their needs

A

Extendible and Retractable bonds

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18
Q

Give holders right to extend

A

Extendible bonds

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19
Q

Give holders right to shorten

A

Retractable bonds

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20
Q

Issued in name of holder and interests are paid directly to them. When bond is sold, new certificate is issued.

A

Registered bonds

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21
Q

Freely transferred and have a detachable coupon

A

Coupon or Bearer bonds

22
Q

Do not pay periodic interests, both principal & compounded interests are due @ maturity date

A

Zero-coupon bonds/
Strip bonds/
Deep discount bonds

23
Q

Pay interest only if issuer earns profit

A

Income bonds

24
Q

Participate in excess earnings of issuer

A

Participating bonds

25
Q

Pay interest indexed to measure of general purchasing power

A

Indexed bonds

26
Q

Principal and interest are adjusted in response to inflation providing protection to bondholder from inflation

A

Inflation-linked bonds

27
Q

Secured by real property

A

Mortgage bonds

28
Q

Secured by issuer securities held by a trustee

A

Collateral trust bonds

29
Q

Collateralized by a pool of assets

A

Asset-backed bonds

30
Q

Have higher yield but lower priority during liquidation

A

Subordinate bonds

31
Q

Not secured by any collateral

A

Debenture bonds

32
Q

High risk, high-yield bonds

A

Junk bonds

33
Q

Bonds issuer can redeem prior to maturity date

A

Callable bonds

34
Q

Holder can exchange for issuer’s shares of stocks

A

Convertible bonds

35
Q

Issued by a corporation

A

Corporate bonds

36
Q

Issued by companies with high credit rating

A

Investment grade

37
Q

Issued by companies with low credit rating

A

Non-investment grade

38
Q

Issued by a government and have low financial risk since they are free from default

A

Government bonds or Treasury bonds

39
Q

Issued by a foreign entity in a domestic market

A

International bonds

40
Q

Denominated in a currency other than currency of the market where they are offered

A

Eurobonds

41
Q

Denominated in the currency of domestic market in which they are offered

A

Foreign bonds

42
Q

Yen-denominated in Japan

A

Samurai bond

43
Q

Australian denominated issued in Australia

A

Kangaroo/Matilda bonds

44
Q

Canadian - Canada

A

Maple bonds

45
Q

Euro - Spain

A

Matador bonds

46
Q

British - British market

A

Bulldog bonds

47
Q

US - US market

A

Yankee bonds

48
Q

Bonds issued in several countries at the same time

A

Global bonds

49
Q

Bonds are accounted for the same way as notes and loans payable but bonds are:

A
  1. long-term
  2. bears interest
  3. issued @ premium/discount
  4. transaction cost
50
Q
A

Intermediate Accounting (6 decks)

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