Chapter 10: Reporting and Analyzing Liabilities

A set of flashcards covering key concepts from Chapter 10 on Reporting and Analyzing Liabilities, focusing on bonds payable, their characteristics, and the advantages and disadvantages of bonds versus stocks.

What is the form of borrowing that involves large sums of money and a longer repayment period?

Bonds Payable

What is the stated interest rate for XYZ Corporation’s bond?

10%

How often are interest payments made for the XYZ Corporation bond?

Semiannually

What is the face value of the bond issued by XYZ Corporation?

$1,000

What is the formula to calculate interest payments to bondholders?

Principal x Stated Rate x # of months passed

If a bond's face value is $100,000 and it is sold at a discount for 98, what is the sales price?

$98,000

What happens when the market interest rate is greater than the stated interest rate?

The bond is sold at a discount.

What is one advantage of issuing bonds over stocks?

Interest expense can be deducted for tax purposes.

What must a company do when it issues bonds?

Pay back interest on a periodic basis and the principal at maturity.

What is a disadvantage of issuing stock compared to bonds?

Issuing stock might decrease Earnings Per Share (EPS).