Questions and Answers
Financing with ____________ requires borrowing, whereas financing with _____________ requires issuing shares of stock.
debt; equity
Loans requiring periodic payments of interest and principal are referred to as _____________ notes.
installment
A(n) ___________ is a contractual arrangement in which an owner provides a user the right to use an asset for a specified period of time.
lease
A corporation that wishes to borrow from the general public rather than a bank will issue:
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A(n) _________ bond is backed by a lien on specified real estate owned by the issuer.
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The two types of financing are:
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Bonds that require payment of the full principal amount of the bond at the end of the loan term are referred to as:
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Periodic payments on installment notes typically include (Select all that apply.):
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A contract in which an owner provides a user the right to use an asset in return for periodic cash payments over a period of time is called a(n):
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Callable bonds can be redeemed at the choice of:
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Which of the following are correct regarding bonds?
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___________ bonds are retired when the bondholder exchanges them for the issuing company's stock.
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Bonds that are backed by collateral are:
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Corporate bonds most often pay interest _____________.
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_______________ bonds require payment of the full principal amount of the bond at the end of the loan term.
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The journal entry to record the issuing of 100 bonds at their $1,000 face value will include a debit to ______ and a credit to ______.
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ABC Company issues a bond with a face value of $100,000 at face amount on January 1. ABC prepares financial statements only at December 31, so no adjusting entries are made during the year to accrue interest. If the bond carries a stated interest rate of 6% payable in cash on December 31 of each year, the journal entry to record the first bond interest payment includes ______.
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A common reason for redeeming a bond prior to its maturity date is that:
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The ___________ rate of interest on a bond is the interest rate printed on the bond, whereas the ______________ rate of interest is the current rate of interest being paid on investments with similar characteristics.
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Convertible bonds allow the lender to convert each bond into:
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A bond will be issued at a discount when the market rate of interest is:
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Most corporate bonds pay interest:
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Study Notes
Financing Types
- Debt financing involves borrowing funds, while equity financing involves issuing shares of stock.
Installment Notes
- Loans that require regular payments of both interest and principal are known as installment notes.
Leases
- A lease is a contract that permits a user to utilize an asset for a set period.
Corporations and Borrowing
- Corporations seeking public borrowing will issue bonds.
Secured Bonds
- Secured bonds have backing from a lien on specific real estate owned by the issuer.
Financing Categories
- The primary types of financing are debt financing and equity financing.
Bond Types
- Term bonds require full payment of the principal at the end of the loan term.
Installment Payments
- Payments on installment notes generally include interest and a portion that reduces the outstanding loan balance.
Lease Agreements
- A contract whereby an owner grants usage rights to an asset in exchange for periodic payments is a lease.
Callable Bonds
- Callable bonds can be redeemed at the discretion of the bond issuer.
Bond Obligations
- Issuing companies are obligated to repay bonds on a specified date and for a specific amount.
Convertible Bonds
- Convertible bonds can be retired if the bondholder opts to exchange them for stock from the issuing company.
Backed Bonds
- Bonds secured by collateral are classified as secured bonds.
Interest Payment Frequency
- Most corporate bonds pay interest semiannually, or twice a year.
Term Bond Characteristics
- Term bonds necessitate full principal payment upon maturity.
Journal Entries for Bonds
- Issuing bonds requires debiting cash and crediting bonds payable.
Interest Payments Journal Entry
- For bonds with a 6% interest rate, the first interest payment entry includes a debit to interest expense and a credit to cash.
Early Bond Redemption
- A common reason for redeeming bonds early is a decrease in market interest rates.
Interest Rates Comparison
- The stated interest rate is what appears on the bond, while the market interest rate reflects current investment trends.
Convertible Bond Options
- Lenders with convertible bonds can convert them into common stock.
Discount Bonds
- Bonds are issued at a discount when the market interest rate exceeds the stated rate.
Interest Payment Frequency Variations
- The majority of corporate bonds pay interest semiannually, not monthly, quarterly, or annually.
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Description
Test your knowledge on key finance concepts with these flashcards from Chapter 9. Focus on understanding the differences between debt and equity financing, the characteristics of installment loans, and other essential financial terms. Perfect for students looking to reinforce their learning in finance.
