F5: Common Bonds Payable Definitions Flashcards Preview

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Flashcards in F5: Common Bonds Payable Definitions Deck (27):
1

Bond Indenture

Contract between the issuer and lender

2

Face (PAR) Value

-Total dollar amount of bond
-When stated rate = market rate

3

Stated (nominal or coupon) interest rate

Specified in bond contract

4

Market (effective) interest rate

-Rate of interest actually earned
-Rate of return for comparable contracts

5

Discount

-When market rate is higher than the stated rate
-Occurs because bonds sell for less than face value to make up for lower return being provided

6

Premium

-When market rate is lower than stated rate
-Occurs because investor will pay more than face value dues to higher return offered

7

Debentures

Unsecured bonds

8

Mortgage bonds

Secured by real property

9

Collateral Trust Bonds

Secured bonds

10

Convertible Bonds

convertible into common stock at the option of the bondholder

11

Nondetachable warrants

The convertible bond itself must be converted into capital stock

12

Detachable warrants

The bond is not surrendered upon conversion, only the warrants plus cash are

13

Participating bonds

Not only have a stated rate of interest, but participate in income if certain earnings levels are obtained

14

Term bonds

-Bonds that have a single fixed maturity date
-Entire principal is paid at end of this term/period

15

Serial bonds

-Pre-numbered bonds that issuer may call and redeem a
portion
-Usually redeemed in a series of annual installments

16

Income bonds

Bonds that only pay interest if certain earnings levels are obtained

17

Zero coupon bonds

-AKA deep discount bonds
-Bonds sold with no stated interest but rather at a discount
-Redeemed at face value without periodic interest payments

18

Commodity-backed Bonds

-AKA asset-linked bonds
-Bonds that are redeemable either in cash or a stated volume of commodity, whichever is greater

19

Bonds usually are in denominations of:

$1,000

20

Bond issue costs

-Transaction costs
-Examples: legal fees, accounting/underwriting fees, printing
-Recorded as deferred asset and amortized straight line

21

Bond sinking funds

-A noncurrent asset
-An appropriation of retained earnings set aside to avoid a cash shortage at time of debt repayment

22

An alternative to sinking funds

-Serial bonds
-Allow issuer to match maturity dates with cash flow requirements, since these bonds have principals that mature in installments

23

Convertible bonds are usually issued at more or less than face value?

More
-Due to the conversion feature

24

GAAP: Issuance Price of convertible bonds is allocated how:

-Allocated to the bonds with no recognition of the conversion feature
-Why: difficult to assign a specific value to the conversion feature

25

Two ways the conversion of bonds to stock may be recorded:

-Book value method (GAAP)
-Market value method (not GAAP)

26

Book Value method

-No gain/loss recognized

27

Market Value method

-Gain/loss recognized