LONG-TERM LIABILITIES

par value

Bond is a written promise to pay an amount identified as the _____ (or face value) of the bond along with Interest (usually semiannually) at a stated annual rate

Advantages of Bonds:

stock holder

Bonds do not affect _________  control as they have no ownership control

Advantages of Bonds:

Tax deductable

Interest on bonds is __________  unlike dividends to stockholders

Disadvantages of Bonds:

Increase

Bonds can _______ return on equity by earning a higher rate than they are paying out

Disadvantages of Bonds:

Interest, maturity

Bonds require periodic _____ payments and payment of the par value at _______

Bond Trading

1.  Are usually in denominations of 1,000 or 5,000

2.  Have a market value expressed as a of their par (face) value (103 ½ or 95)

3.   Bond Indenture – legal document between bondholders and issuer

Issuing bonds at par

1.              Record the sale

2.              Interest expense = Face  x  Interest Rate x  Interest Period

3.              Maturity date

Interest expense =

Face  x  Interest Rate x  Interest Period

Contract rate

annual interest rate paid by the issuer; sets the amount of interest the issuer pays in cash

Market rate

annual rate borrowers are willing to pay and lenders are willing to accept