9 Flashcards
Types of bonds
Term: bonds in same issue mature at same time
Serial: same issue mature in installments overtime
Secured: bond holders have rights of company defaults
Unsecured: trust, riskier, high rate of interest
Bond price
Bonds are always sold at market price
Amount investors will pay
Par value
Same #
Premium
Over original price
Discount
Below original value
Two interest rates set market price of bond
Stayed: coupon rate, printed on bond, paid and received amount
Market: effective interest rate, demanded for loan
Bond premium
Price above face
Credit balance
Market price decreases towards maturity value
Bond discount
Price below face
Debit balance
Market price increases towards maturity value
Gaap bond premium/discount
Requires to amortized life of bond
Premium: reduce interest
Discounts: increase interest
Methods for amortizing bond
Effective interest: required by gaap
Straight line: divides bond discount into amounts over time
Interest expense same each time
Less precise
Only if amount dosent differ that much
Partial period interest amount
Interest at year end
Amortize bond at year end
Retirement of bonds payable before maturity
Pay off early
Relieve high interest payment
Borrow at lower interest
Retained earnings
Enough cash for profit
Low risk
Issuing equity
No liabilities or interest expense
Less risky
More costly
Issuing bonds payable
Not dilute control
Increase risk
Report liabilities on balance sheet
Reported on classified balance sheet
Current liabilities
Long term lia
Report liabilities statement of cash flow
Issuance of debt disclosed
Bonds
Payable debt of issuing company
Bond buyer gets certificate
