Ch. 12 Flashcards
(26 cards)
Stated Interest Rate
The interest rate that determines the amount of cash interest the borrower pays and the investor receives each year.
Time Value of Money
Recognition that money earns interest over time.
Term Bonds
Bonds that all mature at the same time.
Simple Interest
Interest calculated only on the principle amount.
Long-Term Liability
A liability that does not need to be paid within one year or within an entity’s operating cycle, whichever is longer.
Debentures
Unsecured bonds backed only by the creditworthiness of the bond issuer.
Premium on Bonds Payable
Occurs when bond’s issue price is more than face value.
Future Value
The value of an investment at the end of a specific time frame.
Annuity
A stream of equal cash payments made at equal time intervals.
Callable Bonds
Bonds that the issuer may call and pay off at a specified price whenever the issuer wants.
Face Value
The amount a borrower must pay back to the bondholders on the maturity date.
Effective-Interest Amortization Method
An amortization model that calculates interest expense based on the current carrying amount of the bond and the market interest rate at issuance, ad then amortizes the difference between the cash interest payment and calculated interest expense as a decrease to the discount or premium.
Compound Interest
Interest calculated on the principal and all previously earned interest.
Carrying Amount of Bonds
A bond payable minus the discount account current balance or plus the premium account current balance.
Adjunct Amount
An account that is directly related to another account. Adjunct accounts have the same normal balance as the related account and are added to the related account on the balance sheet.
Discount on Bond Payable
Occurs when a bond’s issue price is less than face value.
Mortgages Payable
Long-term debts that are backed with a security interest in specific property.
Debt to Equity Ratio
A ratio that measures the proportion of total liabilities relative to total equity. ( Total Liabilities / Total Equity ).
Secured Bonds
Bonds that give bondholders the right to take specified assets of the issuer if the issuer fails to pay principle or interest.
Market Interest Rate
The interest rate that investors demands in order to loan their money.
Straight-Line Amortization Method
An amortization method that allocates an equal amount of bond discount or premium to each interest period over the life of the bond.
Bond Payable
A long-term debt issued to multiple lenders called bondholders, usually in increments of $1,000 per bond.
Present Value
The value of an investment today.
Financial Leverage
Occurs when a company earns more income on borrowed money then the related interest expense.
