Chapter 14 - Long-term Liabilities Bonds And Notes 1k3k6i

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Lear n i O bj e n g ctive

Com p long ute the -term pote ntial borr impa owin g on ct of earn ings per s h ar e.

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________ Corporations

o Corporations finance their ________ using the following sources:

 Short-term ________ , such as ________ ________

or ________ on ________ .

 Long-term ________ , such as ________ ________

or ________ ________ .

 Equity, such as ________ ________ or ________

________ .

Financing Corporations

o A ________ is a form of an ________ -

________ note. Like a note, a ________ requires periodic ________ payments, and the ________ amount must be repaid at the ________ date.

Financing Corporations Huckadee Corporation is considering the following plans to issue debt and equity:

Financing Corporations

o In deciding among financing plans, the effect on ________ per ________ is often considered.

o ____ ___ _____(EPS) measures the ________

earned by each ________ of common stock. It is computed as follows:

Earnings per Share =

Lear n i O bj e n g Desc ctive ribe th e term cha in ract olog erist y of ics a bond nd s pa yabl e.

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Bond Characteristics and Terminology

o The underlying contract between the

company ________ bonds and the bondholders is called a ________ ________ .

Bond Characteristics and Terminology

o Usually, the ________ ________ of each

bond, called the principal, is $1,000, or a ________ of $ ________. Interest on bonds may be payable ________ , ________ , or ________ . Most pay interest ________ .

Bond Characteristics and Terminology

o When all bonds of an issue mature at the same time, they are called ________ ________.

o If they mature over several dates, they are called ________ ________.

o Bonds that may be exchanged for other ________ are called ________ ________.

Bond Characteristics and Terminology

o Bonds that a corporation ________ the

________ to redeem ________ their maturity are called callable ________.

o Bonds issued on the basis of the general

credit of the corporation are called _______ ________.

Proceeds from Issuing Bonds

o When a corporation issues bonds, the

proceeds ________ for the bonds depend on:  The ________ amount of the bonds, which is the

amount ________ at the ________ date.

 The ________ rate on the bonds.  The ________ rate of interest for ________ bonds.

Proceeds from Issuing Bonds

o The ________ amount and the interest

________ on the bonds are identified in the bond ________ .

o The ________ ________ to be paid on the

________ ________ of the bond is called the contract rate or ________ ________.

Proceeds from Issuing Bonds

o The ________ ________ of interest, or

________ ________ of interest, is determined by transactions between ________ and ________ of similar bonds.

o The market rate of interest is affected by a variety of factors, including investors’ expectations of ________ and ________ ________ conditions.

Proceeds from Issuing Bonds

o Summary  If the market rate equals the ________ ________ ,

bonds will sell at the ________ ________.

 If the selling price of the bonds is less than the

face amount, the bonds are selling at a ________.

 If the selling price of the bonds is more than the

________ amount, the bonds are ________ at a ________.

Proceeds from Issuing Bonds

o The ________ of a bond is quoted as a

________ of the bond’s ________ ________ .  A $ 1,000 bond quoted at 98 could be ________

or sold for $ ________ ($ ________ x 0.___).

 A $ 1,000 bond quoted at 109 could be

purchased or sold for $ ________ ($ ________ x __.__).

Lear n i O bj e n g ctive Journ alize e ntrie s for bo n d s paya bl e .

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________ a Bond Discount

o

The two methods of computing the ________ of a bond discount are:  Straight-line _____  ________ ________ ________ method, sometimes

called the ________ method

o

Both methods ________ the same total amount of ________ over the ________ of the bonds.

Amortizing a Bond Discount

o The ________ ________ ________ method is

required by generally accepted ing principles.

o However, the ________ - ________ method may be used if the results ________ ________ ________ significantly from the interest method.

Bond ________

o A corporation may ________ , or redeem,

bonds before they ________ . ________ bonds can be ________ by the ________ corporation within the period of ________ and at the ________ stated in the bond ________ . Normally, the ________ price is ________ the ________ value.

Bond Redemption

o The ________ ________ of bonds payable is

the ________ amount of the bonds less any ________ ________ or plus any ________ ________ .

Bond Redemption

o A gain or loss may be ________ on a bond redemption as follows:

 A ________ is recorded if the ________ paid for

the ________ is below the bond ________ amount.

 A ________ is recorded if the ________ paid for

the ________ is above the ________ amount.

Lear n i O bj e n g c t ive D e acco scrib unti e an ing f or

nd il insta lustrat e th llme e nt n otes .

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Installment Notes

o An ________ ________ is a debt that requires the ________ to make equal ________ payments to the lender for the ________ of the note. Unlike bonds, a note payment includes the following:  Payment of a portion of the amount ______

________ , called the ________

 Payment of ________ on the ________ balance

Installment Notes

o Installment notes are often used to

purchase specific assets, such as ________ , and are often ________ by the purchased asset.

o When a note is secured by an ________ , it is called a ________ note.

o If the ________ fails to pay a ________ note, the lender has the ________ to take ________ of the ________ asset.

Lear n i O bj e n g c t i v De s c e repo r i b ea r ti ng o nd i l f inclu long-t lustrate erm ding liabi the b o nd lities s an d no p ay a t e s bl e .

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Lear n i O bj e n g c Desc tive ribe nu m and be r ill o a lustr are e f tim arne es in ate h ow t d is com t e r e us ed he s t ch p a ny a ’s fin to r a nci e v a l u a g e s al co t n d it e a ion.

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Number of Times ______ Charges are ________

o Analysts ________ the risk that bondholders

will not receive their ________ payments by computing the ________ of ________ ________ ________ are ________ during the year as follows: Number of Times Interest Charges are = Earned

: 1 x i d s t n p e e nc b l e o p C Apresent VaBlouneds Paya P g icin r P and

Present Value Concept/ ________ Bonds ________

o When a corporation issues bonds, the

price that ________ are willing to ________ for the bonds depends on the following:  The ________ amount of the bonds, which is the

amount due at the ________ ________ .

 The ________ interest to be ________ on the

bonds.

 The ________ rate of ________ .

________ ________ Concept o The time value of ________ concept recognizes

that an amount of cash _______ ________ is worth more than the same amount of ________ to be ________ in the ________ .

o ________ value is the  current worth of a

________ sum of ________  or stream of ________ flows given a ________ rate of ________ .

o The amount to be ________ in the ________ if you make a deposit now is the ________ ________.

Present Value of the ________ ________

o A ________ of equal cash receipts spaced ________ in time is called an ________ .

o The ________ ________ of an annuity is the

sum of the ________ ________ of each cash receipt.

: 2 x i d n te a e R t p s f e p r o e d t A ctive In Metho tion a e Eff

z i t r Amo

Effective ________ ________ Method

o The ________ ________ ________ method of amortization, sometimes called the ________ method, provides for a ________ rate of interest over the ________ of the bonds.

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