Bond Market Flashcards
Issuing Shares
Creates no liabilities or interest expense.
Less risky to the issuing corporation.
Issuing Notes or Bonds
Does not dilute share ownership or control of the corporation.
Results in higher earnings per share because the earnings on borrowed money usually exceeds interest expense
Times-Interest-Earned Ratio
= Operating Income / Interest Expense
A high interest-earned ratio indicates ease in paying interest expense
A low interest-earned ratio indicates difficulty in paying interest expense
Reporting Fair Market Value of Debt
All financial liabilities must be measured for reporting purposes at amortized cost using the effective-interest method.
Current Liabilities
obligations due within one year or within the company’s normal operating cycle if longer.
Known amountEstimated amount
Known Current Liabilities
Accounts payable Short-term notes payable Goods and services tax payable Sales tax payable Accrued expenses Payroll liabilities Unearned revenues Current portion of long-term debt Current portion of capital leases
Current Liabilities
obligations due within
one year or within the company’s normal
operating cycle if longer.
Why Issue Bonds?
Notes Payable and Leasing rarely provide enough money for plant expansion and large projects. To obtain large amounts of longterm capital, management must decide to issue bonds or to use equity financing (common stock)
Types of Bonds
Secured and Unsecured Bonds
Term and Serial Bonds
Registered and Bearer Bonds
Convertible and Redeemable/Retractable Bonds
Determining the market value of bonds
s
Issuing Bonds at Face Value
The amount of principle due at the maturity date.
Issuing Bonds at a Discount
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Issuing Bonds at a Premium
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Redeeming Bonds at Maturity
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Redeeming Bonds before Maturity
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