chap010 - Chapter 10 Reporting and Interpreting Bonds...

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Chapter 10 Reporting and Interpreting Bonds
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Significant debt needs of a company are often filled by issuing bonds . Business Background Capital Structure - Bonds Bonds Cash
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Business Background Advantages of bonds: Bonds are debt , not equity, so the ownership and control of the company are not diluted. Interest expense is tax-deductible . The low interest rates on bonds allow for positive financial leverage .
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Business Background Disadvantages of bonds: The scheduled interest payments are legal obligations and must be paid each period. A single, large principal payment is required at the maturity date.
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Key Ratio Analysis The debt-equity ratio is an important measure of the balance between debt and equity. High debt-equity ratios indicate more leverage and risk .
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1. Face Value = Maturity or Par Value, Principal 2. Maturity Date 3. Stated Interest Rate 4. Interest Payment Dates 5. Bond Date Characteristics of Bonds Payable Other Factors: 6. Market Interest Rate 7. Issue Date BOND PAYABLE Face Value $1,000 Interest 10% Maturity Date 1/1/10 Bond Date 1/1/01
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Bond Classifications Debenture bonds Debenture bonds Not secured with the pledge of a specific asset. Callable bonds Callable bonds May be retired and repaid (called) at any time at the option of the issuer. Redeemable bonds Redeemable bonds May be turned in at any time for repayment at the option of the bondholder. Convertible bonds Convertible bonds May be exchanged for other securities of the issuer (usually shares of common stock) at the option of the bondholder.
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Measuring Bonds Payable and Interest Expense
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chap010 - Chapter 10 Reporting and Interpreting Bonds...

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