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WRD_ch14_SV - 14 Long-Term Liabilities Bonds and Notes...

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11-1 14-1 Long-Term Liabilities: Bonds and Notes 14 Student Version
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11-2 14-2 Compute the potential impact of long-term borrowing on earnings per share. 1 14-2
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11-3 14-3 1 Bond A bond is simply a form of an interest-bearing note. Like a note, a bond requires periodic interest payments, and the face amount must be repaid at the maturity date.
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11-4 14-4 Huckadee Corporation is considering the following plans to issue debt and equity: 1
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11-5 14-5 Earnings per share (EPS) measure the income earned by each share of common stock. It is computed as follows: Earnings per share = Net Income – Preferred Dividends Number of Common Shares Outstanding Data for Huckadee Corporation : 1. Earnings before interest and taxes are $800,000. 2. The tax rate is 40%. 3. All bonds or stocks are issued at their par or face value. 1
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11-6 14-6 Effect of Alternative Financing Plans—$800,000 earnings. 1 Exhibit 1
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11-7 14-7 1 Effect of Alternative Financing Plans —$440,000 earnings. Exhibit 2
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11-8 14-8 Describe the characteristics and terminology of bonds payable. 2 14-8
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11-9 14-9 Bond Characteristics and Terminology The underlying contract between the company issuing bonds and the bondholders is called a bond indenture or trust indenture . 2
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11-10 14-10 Usually, the face value of each bond, called the principal , is $1,000 or a multiple of $1,000. Interest on bonds may be payable annually, semiannually, or quarterly. Most pay interest semiannually.
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