Chapter 12 - 11-112-1Long-Term Liabilities: Bonds and...

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Unformatted text preview: 11-112-1Long-Term Liabilities: Bonds and Notes12Student Version11-212-2Compute the potential impact of long-term borrowing on earnings per share.112-211-312-31BondA bondis 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.11-412-4Huckadee Corporation is considering the following plans to issue debt and equity:111-512-5Earnings per share (EPS)measure the income earned by each share of common stock. It is computed as follows:Earnings per share =Net Income Preferred DividendsNumber of Common Shares OutstandingData 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.111-612-6Effect of Alternative Financing Plans$800,000 earnings.1Exhibit 111-712-71Effect of Alternative Financing Plans$440,000 earnings.Exhibit 211-812-8Describe the characteristics and terminology of bonds payable.212-811-912-9Bond Characteristics and TerminologyThe underlying contract between the company issuing bonds and the bondholders is called a bond indentureor trust indenture.211-1012-10Usually, 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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This note was uploaded on 01/31/2011 for the course BUS 101 taught by Professor Pernia during the Spring '10 term at Essex County College.

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Chapter 12 - 11-112-1Long-Term Liabilities: Bonds and...

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