bonds - 2009-11-111BONDS2009-11-11Bonds Topic Slides2Major...

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Unformatted text preview: 2009-11-111BONDS2009-11-11Bonds Topic Slides2Major Differences Between Bonds and Stocks2009-11-1122009-11-11Bonds Topic Slides3Bonds PayablecLiability similar to a bank loan with fixed interest rates and no principal payments until maturity.cMaturity date is the date when the corporation is required to redeem (pay) the face amount of the bond. Note: for the purpose of this course, each bond will have a face value of $1,000.cGenerally bonds are quite transferable given the active bond trading market that operates similar to the stock market.cTax advantage since interest payments are deductible by the company whereas dividend payments are not.2009-11-11Bonds Topic Slides4Types of BondscMortgage bonds are secured by specific assets.cDebenture bonds are secured only by the companys pledge to pay.cConvertible bonds can be converted into common stock at the option of the bondholder at a predetermined rate (e.g., 4:1).cMost bonds have a callable option that allows the issuing corporation to recall the bonds before the maturity date at a predetermined price.cSome bonds may have floating rates, which means that the coupon rate changes, and some may not have a defined maturity date. There are many other types of bonds; however, these and others will not be covered in this class.2009-11-1132009-11-11Bonds Topic Slides5Accounting Transactions Overview1.Issuance of bonds payablea.Face valueb.Premiumc.Discount2.Interest on bonds payablea.Payment datesb.Year-end3.Amortization of bond premiums/discounts4.Retirement of bonds payable5.Conversions of bonds to common stock2009-11-11Bonds Topic Slides6Accounting Transactions1. Issuance of bonds payable:a)Credit face value of bonds to Bonds PayableExample: A company receives $100,000 in cash for issuing 100 $1,000 face value bonds.DrCash100,000CrBonds payable100,0002009-11-1142009-11-11Bonds Topic Slides7Accounting Transactions (cont.)1. Issuance of bonds payable (cont):b)If more cash is received than the face value, the difference is credited to Premium on bonds payable adjunct liability accountExample: A company receives $110,000 in cash for issuing 100 $1,000 face value bonds....
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This note was uploaded on 11/09/2010 for the course BUSINESS 2257 taught by Professor Iandunn during the Fall '10 term at UWO.

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bonds - 2009-11-111BONDS2009-11-11Bonds Topic Slides2Major...

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