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Financing Basics
General Definitions
Bond Basics
Bond Accounting
More on Bonds
100
Financial Leverage
What is the use of debt financing in relationship to equity financing?
100
EPS
What is "Earnings per Share" or the amount of earnings less preferred dividends divided by the number of common shares outstanding?
100
Bond Indenture
What is the underlying contract between the company issuing bonds and the bondholders?
100
This is the liability account that is credited for the face value of the bonds when a corporation issues bonds to provide funding.
What is bonds payable?
100
Effective Interest Rate Method
What is the method required by GAAP for amortizing bond premiums and discounts?
200
The use of this has the potential to increase Earnings per Share but also carries with it increased risk.
What is debt financing?
200
This is a debt instrument that requires a company to make equal periodic payments to a lender for the term of the note and is often used to purchase specific assets such as equipment.
What is an installment note or a mortgage note?
200
This represents the annual rate of interest payable on a bond and is found in the bond indenture agreement.
What is the contract rate?
200
This is the account that is credited when a corporation issues bonds for greater than their face value.
What is bond premium?
200
Gain or Loss on Sale of Bonds
What is the account that is either debited or credited when a bond is redeemed for an amount different than the carrying value?
300
The concept that receiving $100 today is worth more than receiving $100 a year from today.
What is the time value of money?
300
This term defines the face amount of bonds issued less any unamortized discount or plus any unamortized premium.
What is the carrying amount of bonds payable?
300
This represents the rate generally being paid for a bond with similar characteristics.
What is the market rate?
300
This is the account that is debited when a corporation issues bonds for less than face value.
What is bond discount?
300
108% or $108,000
What is the sales price of a $100,000 bond when it is issued at a premium or 108% of face value?
400
A measurement of the amount of profit coverage a company has as compared to interest payments that a company must make.
What is the Times Interest Earned Ratio?
400
These bonds are more risky for the corporation issuing them because they allow bondholders to exchange the bonds for other securities.
What are convertible bonds?
400
This calculation involves adding the present value of a lump sum payment (face amount of bonds) to the present value of an annuity payment (periodic interest payments on bonds) computed at the market rate of interest.
What is the calculation used to determine the present value and the sales price of a bond?
400
This entry lowers the amount of interest expense that a company records on the income statement and also reduces the carrying amount of bonds payable.
What is amortizing a bond premium?
400
Callable Bond
What is a bond that contains a clause in the indenture agreement that allows a company to buy back its bonds at a set price?
500
Accounts Payable
What is short-term financing used by a corporation?
500
97% or $970
What is the sales price of a $1,000 bond when it is sold at a discount of 97% of the face value?
500
At the end of a fiscal year a corporation must record the amount of interest owed but not yet paid on any long term debt. This entry will debit Interest Expense and credit Interest Payable.
What is an adjusting entry to record accrued interest expense?
500
This entry increases the amount of interest expense that a company records on the income statement and also increases the carrying amount of bonds payable.
What is amortizing a bond discount?
500
A corporation is running short on cash and so they decide to skip an interest payment to bondholders? The interest payment to bondholders can be defined as this.
What is a legal liability?