Chapter 10 Key terms and definitions Flashcards
What is an annuity?
Series of equal payments at equal intervals.
What are bearer bonds?
Bonds made payable to whoever holds them (the bearer); also called unregistered bonds.
What is a bond?
Written promise to pay the bonds par value (or face value) and interest at a stated contract rate; often issued in denominations of 1000.
What is a bond certificate?
Document containing bond specifics such as issuers name, bond par value and interest rate, and maturity date.
What is a bond indenture?
Contract between the bond issuer and the bondholder; it identifies the partys rights and obligations.
What is a Callable Bond?
Bonds that gives the issuer the option to retire them at a stated amount prior to maturity.
What are Capital Leases?
Long term leases in which the lessor transfer all of the risks and rewards of ownership to the lessee.
What is Carrying Value (Book) Value of bonds?
Net amount at which bonds are reported on the balance sheet; equals the par value of the bonds less any unamortized discount or plus any unamortized premium; also called carrying amount or book value.
What is a Contract Rate?
Interest rate specified in a bond indenture ( or note); it is multiplied by the par value to determine the amount of interest paid each period; also called coupon rate, stated rate or nominal rate.
What are convertible bonds?
Bonds that bondholders can exchange for a set number of the issuers shares.
What are coupon bonds?
Bond with interest coupons attached to the certificate; Bondholders detach the coupons when they mature and take them to a bank to be redeemed.
What is the debt to equity ratio?
Defined as total liabilities divided by total equity; show the proportion of a company financed by non owners (creditors) in comparison to with that financed by the owners.
What is a discount on bonds payable?
Is the difference between a bonds par value and its lower issue price or the bonds carrying value; it occurs when the bonds contract rate is less than the market rate.
What is the effective interest method?
Allocates interest expense over the bond life to yield a constant rate of interest; the interest expense for a period is found by multiplying the balance of the liability at the beginning of the period by the bond market rate at issuance; also called the interest method.
What is the fair value option?
Reporting option that permits a company to use fair value in reporting certain asset and liabilities, which is presently based on a 3 level system to determine fair value.
What is a installment note?
Liability requiring a series of periodic payments to the lender.
What is a lease?
Contract specifying the rental of property.
What is market rate?
Interest rate that borrowers are willing to pay and lenders are williing to accept for a specific lending agreement given the borrowers risk level.
What is a Mortgage?
Legal loan agreement that protects a lender by giving the lender the right to be paid from the cash proceeds from the sale of a borrowers assets identified in the mortgage.
Off balance sheet financing?
Acquisition of assets by agreeing to biabilities not reported on the balance sheet.
What are Operating leases?
Short term (or cancelable) leases in which the lessor retains risks and rewards of ownership.
What is the par value of a bond?
Amount the bond issuer agrees to pay at maturity and the amount on which cash interest payments are based; also called face amount or face value of a bond.
What is a pension plan?
Contractual Agreement from the employer to the employee for the employer to provide benefits to the employees after they retire; Expensed when incurred.
What are premiums on bonds?
Difference between the bonds par value and its higher carrying value; it occurs when the contract rate is higher than the marketing rate; also called bond premium.
What are registered bonds?
Bonds owned by investors whose names and addresses are recorded by the issuer; interest payments are made to the registered owners.
What are secured bonds?
Bonds that have specific assets of the issuer pledged as collateral.
What is a serial bond?
Bonds consisting of separate amounts that mature at different dates.
What are sinking fund bonds?
Bonds that require the issuer to make deposits to a separate account; bondholders are repaid at maturity from that account.
What is straight line bond amortization?
Method allocating an equal amount of bond interest expense to each period of the bond life.
What are term bonds?
Bonds scheduled for payment (maturity) at a single specified date.
What are unsecured bonds?
Bonds backed only by the issuers credit standing; almost always riskier than secured bonds; also called debentures.
