Chapter 15 Revision3

Chapter 15 Revision3 - Accounting Principles A Business Perspective 8e Chapter 15 Long-Term Financing BONDS Notes Payable Leases Revision3 KRJ

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Accounting Principles: Accounting Principles: A Business Perspective, 8e A Business Perspective, 8e Chapter 15: Long-Term Financing BONDS, Notes Payable, Leases Revision3 – KRJ Feb08 1
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Chapter 15 Bonds Payable, Notes Payable Bonds Payable, Notes Payable Bonds a long-term debt owed by its issuer and evidenced by a bond certificate that is negotiable may be issued by a company to finance the acquisition of long-term assets Corporate Bonds usually have maturities of 20 years or more Long-term notes payable (bank loans), on the other hand, usually mature in 10 years or less 2
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Chapter 15 Comparison of Bonds to Stock Comparison of Bonds to Stock a bond is a DEBT ; a share of stock is a unit of OWNERSHIP a bond has a MATURITY DATE , a share of stock has no maturity date. INTEREST usually MUST BE PAID periodically on a bond (a legal obligation) DIVIDENDS on stock are payable only when the directors declare them bond interest is TAX DEDUCTIBLE , dividends on stocks are not tax deductible 3
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Chapter 15 Bonds Payable Bonds Payable Bonds are issued by Corporations seeking to borrow large amounts of money an UNDERWRITER is usually employed to handle the details of marketing the bonds and may guarantee the issuer a fixed price for its bonds. These are generally the Corporate Finance Units in Broker/Dealer firms ( Goldman Sacks ) a TRUSTEE is usually appointed to represent the bondholders who purchases the bonds Wells Fargo 4
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Chapter 15 Bond Indenture Bond Indenture the BOND INDENTURE is a contract or loan agreement between the issuing corporation and the investors. It deals with issues such as: interest rate; maturity amount and date; possible restrictions on dividends; repayment plans; and other provisions relating to the debt. 5
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Chapter 15 Bond Trustee Bond Trustee An important duty of the TRUSTEE is to assure that the borrower fulfills provisions of the indenture Interest must be paid on time Necessary reports must be filed to comply with securities regulations AUDITED FINANCIAL STATEMENTS required by SEC if bonds are sold to the general investing public. 6
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Chapter 15 Bond Characteristics Bond Characteristics Bonds may be Secured or Unsecured: SECURED BONDS have assets pledged to support them Mortgage bonds UNSECURED BONDS are backed only by the general creditworthiness of the issuer – DEBENTURES Bonds may be Registered or Unregistered REGISTERED BONDS are recorded in the name of the owner as to principal only, or as to both principal and interest UNREGISTERED BONDS are not recorded as to ownership – also called Bearer Bonds Issued with detachable coupons that are submitted for payment of periodic interest 7
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Chapter 15 Secured Bonds Secured Bonds 8
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Chapter 15 Unsecured Bonds - Debentures Unsecured Bonds - Debentures 9
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Chapter 15 Registered Bonds Registered Bonds 10
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Chapter 15 Coupon Bonds Coupon Bonds (more certificate examples online) (more certificate examples online) 11
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This note was uploaded on 04/08/2008 for the course ACT 240 taught by Professor Janson during the Winter '08 term at N. Michigan.

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Chapter 15 Revision3 - Accounting Principles A Business Perspective 8e Chapter 15 Long-Term Financing BONDS Notes Payable Leases Revision3 KRJ

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