Ch 22 - Long-Term Bonds

Question 1

bond indenture

Answer 1

bond contract

Question 2

bond issue costs

Answer 2

costs incurred in issuing bonds, such as legal and accounting fees and printing costs

Question 3

bond retirement

Answer 3

when a bond is paid and the liability is removed from the company’s balance sheet

Question 4

bond sinking fund investment

Answer 4

fund established to accumulate assets to pay off bonds when they mature

Question 5

bonds payable

Answer 5

long-term debt instruments that are written promises to repay the principal at a future date;
interest is due at a fixed rate payable over the life of the bond

Question 6

call price

Answer 6

amount the corp must pay for the bond when it is called

Question 7

callable bonds

Answer 7

bonds that allow the issuing corp to require the holder to surrender the bonds for payment before their maturity date

Question 8

carrying value of bonds

Answer 8

balance of the Bonds Payable account plus the Premium on Bonds Payable account minus the Discount on Bonds Payable account;
aka: book value of bonds

Question 9

collateral trust bonds

Answer 9

bonds secured by pledge of securities; such as stocks or bonds of other companies

Question 10

convertible bonds

Answer 10

bonds that give the owner the right to convert the bonds into common stock under specified conditions

Question 11

coupon bonds

Answer 11

unregistered bonds that have coupons attached for each interest payment; aka bearer bonds

Question 12

debentures

Answer 12

unsecured bonds backed only by corp’s general credit

Question 13

discount on bonds payable

Answer 13

excess of face value over price received by corp for a bond

Question 14

face interest rate

Answer 14

contractual interest specified on the bond

Question 15

leveraging

Answer 15

using borrowed funds to earn a profit greater than interest that must be paid on borrowing

Question 16

market interest rate

Answer 16

interest rate a corp is willing to pay and investor are willing to accept at the current time

Question 17

mortgage loan

Answer 17

long-term debt created when a note is given as part of the purchase price for land or buildings

Question 18

premium on bonds payable

Answer 18

excess of price paid over face value of a bond

Question 19

registered bonds

Answer 19

bonds issued to a party whose name is listed in corp’s records

Question 20

secured bonds

Answer 20

bonds for which property is pledged to secure claims of bondholders

Question 21

serial bonds

Answer 21

bonds issued at one time but payable over period of years

Question 22

straight-line amortization

Answer 22

amortizing premium or discount on bonds payable in equal amounts over life of bond

Question 23

trading on the equity

Answer 23

see leveraging