Unit 1 Accounting for Long-Term Obligations Flashcards
Your goals for this “long-term obligations” chapter are to learn about: --Long-term notes and present value concepts. --The nature of bonds and related terminology. --Accounting for bonds payable, whether issued at par, a premium or discount. Effective-interest amortization methods. --Bonds issued between interest dates, bond retirements, and fair value measurements. --Analysis, commitments, and leases.
Streams of level (i.e., the same amount each period) payments occurring on regular intervals
Annuities
An obligation divided into transferable units requiring the issuer to make periodic interest payments and an eventual repayment of the face amount?
Bonds Payable
A bond that provides the issuer an option to reacquire the bonds before scheduled maturity at a preset price?
Callable Bond
Promises to engage in some future action; not necessarily creating a recordable accounting liability but potentially necessitating enhanced disclosure?
Commitments
Interest calculations that provide for periodic inclusion of accumulated interest into the base on which interest is calculated; “interest on the interest”?
Compound Interest
A bond that may be converted by the holder into stock of the issuing company?
Convertible Bond
A bond that has detachable coupons that are exchanged for interest payments; historically popular but falling into disuse?
Coupon Bond
A bond that lacks specific collateral; payment is only assured by the general faith and creditworthiness of the issuer?
Debenture Bond
A theoretically preferable method for amortizing premiums and discounts on bonds; interest expense is a constant percentage of the bonds ever-changing carrying value?
Effective-Interest Amortization
The amount to which an interest-earning amount is expected to grow over a stipulated time period at a given interest rate?
Future Value
A bond that is issued by a company of low credit worthiness, and entails substantial risk of nonpayment; generally offers a high interest rate to compensate for the high risk?
Junk Bond
A bond that cannot be paid off before scheduled maturity?
Nonredeemable Bond
A bond that cannot be paid off with the proceeds of a new debt issue?
Nonrefundable Bond
The calculated value today of an amount to be received in the future, based upon an assumed interest rate (the reciprocal of future value)?
Present Value
A bond for which ownership records are maintained, and interest is paid to the registered owner?
Registered Bond
