Ch 15 Non-Current Liabilities Flashcards
amortized cost
The face value (principal amount) of the bonds less any unamortized discount or plus any unamortized premium. (p. 787)
amortizing the discount
The allocation of the bond discount to interest expense over the life of the bonds. (p. 789)
amortizing the premium
The allocation of the bond premium to interest expense over the life of the bonds. (p. 793)
bond
A debt security that is traded on an organized securities exchange, is issued to investors, and has these properties:
- the principal amount will be repaid at a designated maturity date and
- periodic interest is paid (normally semi-annually) at a specified rate on the principal amount. (p. 778)
bond certificate
A legal document indicating the name of the issuer, the face value of the bond, and other data such as the contractual interest rate and maturity date of the bond. (p. 780)
callable bonds
Bonds that the issuing company can redeem (buy back) at a stated dollar amount prior to maturity. (p. 780)
aka redeemable bonds
capital lease
A lease that transfers substantially all the benefits and risks of ownership to the lessee, so that the lease effectively results in purchase of the asset under ASPE. (p. 804)
Referred to a finance lease under IFRS.
collateral
Assets pledged as security on a loan. (p. 779)
contractual interest rate
The rate that determines the amount of interest the borrower pays and the investor receives. (p. 780)
Aka coupon interest rate & stated interest rate
convertible bonds
Bonds that can be converted into common shares that the bondholder’s option. (p. 780)
coupon interest rate
The rate the determines the amount of interest the borrower pays and the investor receives. (p. 780)
Aka contractual interest rate & stated interest rate
debentures
Bonds issued against the general credit of the borrower. (p. 780)
Aka unsecured bonds
debt to total assets
The ratio of total liabilities to total assets. Indicates the proportion of assets that is financed by debt. (p. 807)
discount (on bonds payable)
The difference that results when bonds’ selling price is less than their face value. This occurs when the market interest rate is greater than the contractual interest rate. (p. 785)
EBIT
earnings before interest and tax, calculated as:
profit + interest expense + income tax expense. (p. 807)
effective-interest method of amortization
A method of calculating interest expense and of amortizing a bond discount or bond premium that results in periodic interest expense equal to a constant percentage of the amortized cost of the bonds. (p. 787)
face value
The amount of principal that the issuer must pay at the bond’s maturity date. (p. 780)
Aka maturity value & par value
finance lease
A lease that transfers all the benefits and risks of ownership to the lessee so that the lease effectively results in a purchase of the asset under IFRS. (p. 804)
Aka capital lease under ASPE
financial leverage
Borrowing at one rate and investing at a different rate. (p. 779)
fixed interest rate
An interest rate that is constant (unchanged) over the term of the debt. (p. 799)
floating (or variable) interest rate
An interest rate that changes over the term of the debt with fluctuating market rates. (p. 799)
future value
An amount that will be paid in the future. In the case of bonds payable, it is the face amount of the bonds. (p. 785)
instalment note
Normally a long0term note that is payable in a series of periodic payments. (p. 799)
instalments
A series of periodic payments made to repay a note payable. (p. 799)
interest coverage ratio
A measure of a company’s ability to meet its interest obligations. It is calculated by dividing profit (earnings) before interest expense and income ta expense (EBIT) by interest expense. (p. 807)
lease
A contractual arrangement between two parties where the party that owns an asset agrees to allow another party to use the specified property for a series of cash payments over an agreed period of time. (p. 803)
lessee
The renter of a property. (p. 803)
lessor
The owner of an asset for rent. (p. 803)
market (effective) interest rate
The rate that investors require for lending money to a company. (p. 781)
market value (of the bond)
The price that the bond trades at. (p. 781)
maturity date
The date on which the final payment on a debt security is due to be repaid by the issuer to the investor. (p. 780)
maturity value
The amount of principal that the issuer must pay at the bond’s maturity date. (p. 780)
Aka face value & par value
mortgage bond
A secured bond where real estate is provided as collateral. (p. 779)
mortgage note payable
An instalment note payable that pledges title to specific assets as security for a loan. (p. 799)
non-current liability
Obligation that is expected to be paid after one year or longer. (p. 778)
off-balance sheet financing
The intentional effort by a company to structure its financing arrangements to avoid showing liabilities on its books. (p. 804)
operating lease
A lease where the benefits and risks of ownership are not transferred to the lessee. (p. 803)
par value
The amount of principal that the issuer must pay at a bond’s maturity date. (p. 780)
Aka face value & maturity value
premium (on bonds payable)
The difference that results when bonds’ selling price is greater than their face value. This occurs when the market interest rate is less than the contractual interest rate. (p. 785)
present value
The amount that must be invested today at a specified interest rate to have a certain amount in the future. (p. 782)
redeemable bonds
Bonds that the issuer can retire at a stated dollar amount before maturity. (p. 780)
Aka callable bonds
redemption price
An amount that a company pays to buy back bonds that is specified at the time the bonds are issued. (p. 798)
secured bonds
Bonds with specific assets pledged as collateral by the bond issuer. (p. 779)
sinking fund bonds
Bonds secured by specific assets set aside to redeem (retire) the bonds. (p. 779)
stated interest rate
The rate that determines the amount of interest the borrower pays and the investor receives. (p. 780)
Aka contractual interest rate & coupon interest rate
unsecured bonds
Bonds issued against the general credit of the borrower. (p. 780)
Aka debentures