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44 Cards in this Set

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  • Back
long term debt consists of
probable future sacrifices of economic benefits arising from present obligations that are not payable within a year or the operating cycle of the business, whichever is longer
examples of long term liabilities are
bonds payable
L/T notes payable
mortgages payable
pension liabilities
lease liabilities
provisions of a covenant or restriction generally include
amounts authourized to be issued
interest rate
due dates
call provisions
property pledged
sinking fund requirements
working capital
dividend restrictions
limitations of the assumption of additional debt
a bond represents a promise to pay
1) A sum of money at a designated maturity date
2) periodic interest at a specified rate on the maturity amount (face value)
when the investment bank underwrites the entire issue of bonds by guaranteeing a certain sum to the company
firm underwriting
when investment bank sells the bond issue for a commission on the proceeds of the sale
best-efforts underwriting
when the issuing company sells the bonds directly to a large institution without the aid of an underwriter
private placement
bonds backed by a pledge of some sort of collateral
unsecured bonds
types of unsecured bond
mortgage bonds
collateral trust bonds
a bond that is secured by stocks and bonds of other corporations
collateral bond
an unsecured bond
debenture bond
a risky unsecured bond
junk bond
bond issues that mature on a single date
term bonds
bond issues that mature in installments
serial bonds
who frequently uses serial bonds
school or sanitary districts, municipalities, or other local taxing bodies that receive money through a special levy
bonds that give the issuer the right to call and retire the bonds pror to maturity
callable bonds
bonds that are convertivle into other securities of the corporation for a specified time after issuance
convertible bonds
commodidity backed bonds are also called
asset-linked bonds
bonds that are redeemable in measures of a commodity such as barrels of oil, etc
commodity backed bonds, or asset-linked bonds
publicly marketed long-term debt securities that do not bear interest
deep-discount bonds or zero interest debenture bonds
bonds issued in name of the owner
registered bonds
bond not recorded in th ename of the owner and may be tranferred from one owner to another by mere delivery
bearer or coupon bond
pay no interest unless the issuing compny is profitable
income bonds
interest on these bonds is paid from specified revenue soruces
revenue bonds
examples of entities who issue revenue bonds
airports, toll-roads, school districts, counties, governmental bodies
steps to issuing of bonds to the public
issuing company must arrange for underwriters that will help market and sell the bonds

second it must obtain the SEC's approval of the bond issue, undergo auditsm, and issue a prospectus

third, the company must have the bond certificates printed
the selling price of a bond issue is set by
supply and demand of buyers

relative risk

market conditions

state of the economy
the interest rate written in the terms of the bond indenture is known as the
stated, coupon, or nominal rate
the stated rate is expressed as a
percentage of the face value of the bonds
face value is also called
par value,
principal amount
maturity value
if bonds sell at less than face value they sell at a
discount
if bonds sell for more than face value they sell at a
premium
The rate on interest actually earned by the bondholders is called the
effective yeild or market rate
the investors recive interest at the ____ rate computed on the face value, but actually earn at the____ rate that exceeds the stated rate because they paid less than face value for the bonds
stated, effecive
Because of its relation to interest, compnies amortize the discount and charge it to _____ over the period of time that the bonds are outstanding
interest expense
the ____ method amortizes a constant amount each year
straight line method
Whether callable or not a company must ___ any premium or discount over the bond's life to maturity bceause early redemption is not a certainty
amortize
Bonds issued between interest dates will require that the purchaser will
pay the seller the interest accrued from the last interest payment date to the date of issue
When dealing with the premium on bonds issued between interest dates, you ____ the premium from ____
amortize
date of sale
the preferred procedure for amortization of a discount or premium is the
effective-interest method or present value amortization
Under the effective-interest method companies:
1)compute bond interest expense by multiplying the carrying value of the bonds at the beginning of the period by the effective interest rate.

2) Determine the bond discount or premium amortization next by comparing the bond interest expense with the interest (cash) to be paid
the effective interest method produces a periodic interest expense equal to
a constant percentage of the carrying value of the bonds
the EFFECTIVE INTEREST METHOD or the STRAIGHT LINE method better matches expenses with revenues
Effective interest rate
When the annual amounts are material different between the effective-interst and straight-line methods GAAP requires the use of
Effective interest method