Fall09-Bonds - Bonds and Note Payable Chapter 14 Spiceland...

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Bonds and Note Payable Chapter 14 – Spiceland Text
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Present obligations that are not payable within a year of the balance  sheet date or the operating cycle of the company, whichever is longer We are going to focus on the two most common types of long-term debt: Bonds Note payable
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Holder/buyer Party that will be receiving the interest payments and the lump-sum maturity amount in the future Issuer/seller Party that is recording the long-term debt as a liability on its books
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A bond is essentially another method for a company to borrow money A company that issues/sells a bond receives cash from the purchaser/investor and essentially makes a promise to pay: 1) A lump sum amount of money (face value) at a designated maturity date and 2) Periodic interest on the face/maturity
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Bond Selling Price $ Bond Selling Price $ Bond Certificate Bond Certificate Interest Payments $ Interest Payments $ Face Value Payment Face Value Payment at End of Bond Term $ at End of Bond Term $ At Bond Issuance Date At Bond Issuance Date Company Company Issuing Issuing Bonds Bonds Subsequent Periods Subsequent Periods Investor Investor Buying Buying Bonds Bonds Company Company Issuing Issuing Bonds Bonds Investor Investor Buying Buying Bonds Bonds
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What is the buyer paying for? Interest payments received periodically Principal (face value) of the bond received at the bond’s maturity date The bond price is the present value of these cash flows associated with the bond.
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We now know that the bond price reflects the present value of interest payments and principal. There are two types of interest rates associated with bonds that affect bond price. Stated rate/face rate/coupon rate/nominal rate Effective rate/market rate/effective yield
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Stated interest rate is: The bonds sells: Below market rate At a discount (Cash received is less than face amount) Equal to market rate At face amount equal to face amount) Above market rate premium (Cash received is greater
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On January 1, 2009, Gap Inc. issued $700,000 of 12% bonds, dated January 1 st . Interest is payable
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This note was uploaded on 05/08/2010 for the course ACCTG 322 taught by Professor Gill during the Spring '08 term at San Diego State.

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Fall09-Bonds - Bonds and Note Payable Chapter 14 Spiceland...

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