1 What are long-term liabilities?
1.1 Long term liabilities are obligations that are expected to be paid after the
one year mark.
2 What are bonds? Why are bonds issued by corporate
management?
2.1 Bonds are interest-bearing notes payable. Corporate management issues
bonds because it soley doesn’t want just one would be risky. As well sell
to investors to raise long-term capital.
3 What are the advantages of bonds over common stock.
3.1 Bonds has the advantage as it helps by saving taxes, the stockholder
control is not affected, and the return for stockholder’s equity may be
higher
4 What is earning per share (EPS)?
4.1 EPS means the net income minus the dividends divided by the shares. The
company money is allocating and serves on how profitable the company
is.
5 List and define the many types of bonds stated in this
chapter.
5.1 There are secured bonds which haves a specific assets of the issuer
pledged as collateral for the bonds. A Mortgage bond is secured by real
estate. Unsecured bonds (debenture bonds) are issued against the general
credit of the borrower. Convertible bonds that can be converted into
common stock at the bondholder’s option. Callable bonds are bonds that
can be redeemed at a stated dollar amount prior to maturity.
6 Define these bond terms: Face value, Maturity
date, Contractual interest rate (aka stated rate)
6.1 Face value is the amount of the principal due at the maturity date.
6.2 Maturity date is the date that the final payment us due to the investor
from the issuing company
6.3 Contractual interest rate is rate used to determine the amount of cash
interest the issuing company pays and the investor receives.
7 Describe the relationship between a bond certificate and
bond indenture.
7.1 Bond indenture is terms of the bond issue are set forth in a legal
document.
7.2 Bond Certificate is a legal document that indicates the name of the issuer,
face value of the bonds, the contractual interest rate, and maturity date of
the bonds.
8 How is the price of a bond quoted?
8.1 Are quoted as a percentage of the face value of the bond, which are
usually 1,000.
8.2 A $1,000 bond with a quoted price of 97 means that the selling price of
the bond is 97% of face value, or $970
9 If you were an investor wanting to purchase a bond, how
would you determine how much to pay?
9.1 To determine how much to pay I by using time value of money.
10 How does a potential bond buyer determine the amount to
pay for it?
10.1
11 Explain the term time value of money.
11.1 Time value of money is a relationship between time and money that
dollar received today is worth more than a dollar receive some time in the
future.
12 What is the market price of a bond?
12.1 The market price of a bond is the value at which it should sell in the
marketplace.
13 What is the market interest rate? How is it determined?
13.1 Market interest rate is the rate investors demand for loaning the money.
13.2 The payment amounts, the length of time until the amounts are paid, and
the interest rate determine it.
14 Now, compare your responses for the stated rate and market
rate. What is the difference?
15 Upon issuing a bond, what (new) account is used to record it
(not cash)?
16 . Interest on bonds payable is computed in the same manner
as interest on notes payable. What is the formula?
17 If you earned interest semi-annually how often would you
receive payments in a year?
18 What does it mean when a company sells a bond at
a: Discount, Premium, Par value
19 Describe the book value of a bond.