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ACFM 322 Chapter 14

TermDefinition
Debenture Bond Backed by the "full faith and credit" of the issuing corporation
Subordinated Debenture Bond Not entitled to receive any liquidation payments until other claims on other specified debt issues have been satisfied
Mortgage Bond Backed by a lien on specific real estate owned by the issuer
Bond Indenture Document that describes the specific promises made to bondholders
Callable Most corporate bonds are ___________, meaning they can be bought back early
Serial Bonds Retired in installments during all or part of the life of the bond issue
Convertible Bond Retired as a consequence of bondholders choosing to convert them to stock; can be exchanged for shared of stock at the option of the bondholder
Stated Rate Coupon/face rate; determines cash payments
Market Rate Effective Rate; determines price of a bond
Premium When a bond sells for more than the face amount
Discount When a bond sells for less than the face amount
Zero Coupon Bond Bond that pays no periodic interest payments
Effective Interest Method Market Rate x Outstanding Balance of Bond/Debt
Straight-Line Method Discount or premium is allocated equally over the term
Debt Issue Costs Cost of issuing debt securities, fees associated with it
Debit Discount account and amortized over the term to maturity How are debt issue costs handled?
Private Placement Selling debt securities to a single investor
Implicit Rate of Interest Interest rate understood in the agreement
Imputing Deciding what the appropriate rate should be
Substance Over Form Economic essence of a transaction should prevail over its appearance
Installment Notes Involve a series of equal payments that each include a portion for principal and for interest
Dividing Payment is calculated by __________ the loan amount by a discount factor
0 Balance of an installment note is ______ at the maturity date
Long-Term Debt Typically recorded as a single amount (net of any discount or premium)
Disclosed Fair value of financial instruments must be ___________ in the financial statements or the notes
Nature of the Debt, Interest Rates, Maturity Dates, Call Provisions, Conversion Options, Restrictions Imposed, Assets Pledged as Collateral, and Amounts Payable for each of the next 5 years Notes should include:
Financing For the issuer: issuing bonds or notes is a ________ activity in the cash flow statement
Investing For the investor: buying bonds/notes is a _________ activity in the cash flow statement
Operating Interest expense and interest revenue are considered __________ activities in the cash flow statement
Early Extinguishment of Debt When debt of any kind is retired prior to its scheduled maturity date
Gain or Loss A difference between the outstanding balance and the amount paid represents a ______ or _______
Book Value When a bondholder exercises a conversion option, new shares are issued at the _____________ of the bonds
Induce Some companies try to ___________ conversion, through a call provision or by making a better offer
Stock Warrant Gives the investor an option to purchase a stated number of shares of common stock at a specified option price often within a given period of time
Fair Value of Liabilities Changes in interest rates cause changes in the ____________________
Issuance The fair value option must be elected at the time of ___________
Income Statement as a Gain/Loss Changes in fair value will be reported on the _____________________
Increases A credit in the fair value adjustment account _____________ the carrying value of that debt
Created by: MOWGaming04
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