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Reporting and Interpreting Bonds Chapter 10 PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA McGraw­Hill/Irwin Copyright © 2011 by The McGraw­Hill Companies, Inc. All rights reserved. Understanding the Business The mixture of debt and equity used to finance a company’s operations is called the capital structure: Debt - funds from creditors Equity - funds from owners 10­2 Characteristics of Bonds Payable Advantages of bonds: • Stockholders maintain control because bonds are debt, not equity. • IInterest expenseiis ttax deductible. • Theiimpact on earnings iis positive because money can often be borrowed at a low interest rate and iinvested at a higher Disadvantages offbonds:: • Risk of bankruptcy exists because the interest ands fscheduled ortcreditors will • Negative impactton cash iinterest andtprincipal must 10­3 Characteristics of Bonds Payable Two types of cash payment in the bond contract: 1. Principal. 2. Cash interest payments. Bond Terms 1.Principal, par value and face value 2.Contract, stated, or coupon rate of interest 3.Market, yield, or effective-interest rate 10­4 Characteristics of Bonds Payable An indenture is a bond contract that specifies the legal provisions of a bond issue. 10­5 Debenture bonds No assets are pledged as guarantee of frepayment tat tmaturity.. Secured bonds Specific assets are pledged as guarantee ofrrepayment at maturity. Callable bonds Bond may be called forrearly retirement tby the issuer.. Convertible bonds Bond may be converted to otherrsecurities (usually common stock). ... - tailieumienphi.vn
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