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acct207 chapter 10

Terms in this set (26)

bond certificate
a legal document that indicates the name of the issuer, the face value of the bonds, and other data such as the contractual interest rate and the maturity date of the bonds
bonds
a form of interest-bearing notes payable issued by corporations, universities, and governmental entities
callable bonds
bonds that the issuing company can redeem (buy back) at a stated dollar amount prior to maturity
capital lease
a contractual agreement allowing one party (the lessee) to use the assets of another party (the lessor); accounted for like a debt-financed purchase by the lessee
contingencies
events with uncertain outcomes that may represent potential liabilities
contractual (stated) interest rate
rate used to determine the amount of interest the borrower pays and the investor receives
convertible bonds
bonds that can be converted into common stock at the bondholder's option
current liability
a debt that a company reasonably expects to pay (1) from existing current assets or through the creation of other current liabilities, and (2) within one year or the operating cycle, whichever is longer
discount (on a bond)
the difference between the face value of a bond and its selling price when a bond is sold for less than its face value
effective-interest method of amortization
a method of amortizing bond discount or bond premium that results in periodic interest expense equal to a constant percentage of the carrying value of the bonds
effective-interest rate
rate established when bonds are issued that maintains a constant value for interest expense as a percentage of bond carrying value in each interest period
face value
amount of principal due at the maturity date of the bond
long term liabilities
obligations that a company expects to pay more than one year in the future
market interest rate
the rate investors demand for loaning funds to the corporation
maturity date
the date on which the final payment on a bond is due from the bond issuer to the investor
mortgage note payable
a long term note secured by a mortgage that pledges title to specific assets as security for the loan
notes payable
an obligation in the form of a written note
off-balance sheet financing
the intentional effort by a company to structure its financing arrangements so as to avoid showing liabilities on its balance sheet
operating lease
a contractual agreement allowing one party (the lessee) to use the asset of another party (the lessor); accounted for as a rental
premium (on a bond)
the difference between the selling price and the face value of a bond when a bond is sold for more than its face value
present value
the value today of an amount to be received at some date in the future after taking into account current interest rates
secured bonds
bonds that have specific assets of the issuer pledged as collateral
straight-line method of amortization
a method of amortizing bond discount or bond premium that allocates the same amount to interest expense in each interest period
time value of money
the relationship between time and money. a dollar received today is worth more than a dollar promised at some time in the future
times interest earned
a measure of a company's solvency, calculated by dividing the sum of net income, interest expense, and income tax expense by interest expense
unsecured bonds
bonds issued against the general credit of the borrower
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