Chapter 22 - Long-term bonds. After reading this chapter, you should be able to: Name and define the various types of bonds, explain the advantages and disadvantages of using bonds as a method of financing, record the issuance of bonds, record the payment of interest on bonds, record the accrual of interest on bonds,. | 1- McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Long-Term Bonds Section 1: Financing Through Bonds Chapter 22 Section Objectives Name and define the various types of bonds. Explain the advantages and disadvantages of using bonds as a method of financing. Secured or unsecured Registered or unregistered Single-maturity or serial-maturity Types of Bonds Name and define the various types of bonds Secured and Unsecured Secured: specific property pledged as collateral. Unsecured: backed only by a company’s general credit. Unsecured bonds are known as debentures Objective 1 Registered and Unregistered Registered: issued to a particular purchaser listed in the corporation’s records. Unregistered (coupon): transferred by delivery; coupons attached for each interest payment. Single-Maturity and Serial-Maturity Single-maturity: Bonds mature on the same day. Serial-maturity: Bonds are payable over a period of years. Types of Bonds The market . | 1- McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Long-Term Bonds Section 1: Financing Through Bonds Chapter 22 Section Objectives Name and define the various types of bonds. Explain the advantages and disadvantages of using bonds as a method of financing. Secured or unsecured Registered or unregistered Single-maturity or serial-maturity Types of Bonds Name and define the various types of bonds Secured and Unsecured Secured: specific property pledged as collateral. Unsecured: backed only by a company’s general credit. Unsecured bonds are known as debentures Objective 1 Registered and Unregistered Registered: issued to a particular purchaser listed in the corporation’s records. Unregistered (coupon): transferred by delivery; coupons attached for each interest payment. Single-Maturity and Serial-Maturity Single-maturity: Bonds mature on the same day. Serial-maturity: Bonds are payable over a period of years. Types of Bonds The market interest rate is the interest rate a corporation is willing to pay and investors are willing to accept at the current time. The face interest rate refers to the contractual interest rate specified on the bond. Interest Rates Capital Stock Bonds Payable Permanent Capital No debt to repay. Debt Must be repaid. Advantages and Disadvantages of Using Bonds as a Method of Financing Explain the advantages and disadvantages of using bonds as a method of financing Objective 2 Capital Stock Bonds Payable Stockholders’ Equity Common stock has no legal requirement for dividends. Preferred stock requirements depend on contract. Dividends are not deductible for income tax purposes. Long-term liabilities Interest must be paid on the bonds. Interest is a deductible expense. Advantages and Disadvantages of Using Bonds as a Method of Financing Capital Stock Bonds Payable Preference dividends on preferred stock are usually slightly higher than interest rates on bonds because there is more risk .
