Long-Term Financing: Bonds
Completion requirements
A company can purchase bonds as an investment or can issue bonds as a mechanism to raise capital. It is important to understand the different types of bond issues that a company can use, and the impact of interest rates on those bonds. After this reading, you will be able to explain how a company can use long-term bonds as part of their capital budget.
Learning objectives
After studying this chapter, you should be able to:
- Describe the features of bonds and tell how bonds differ from shares of stock.
- List the advantages and disadvantages of financing with long-term debt and prepare examples showing how to employ financial leverage.
- Prepare journal entries for bonds issued at face value.
- Explain how interest rates affect bond prices and what causes a bond to sell at a premium or a discount.
- Apply the concept of present value to compute the price of a bond.
- Prepare journal entries for bonds issued at a discount or a premium.
- Prepare journal entries for bond redemptions and bond conversions.
- Describe the ratings used for bonds.
- Analyze and use the financial results – times interest earned ratio.
- Explain future value and present value concepts and make required calculations (Appendix).
Source: Roger H. Hermanson, James Don Edwards, and Michael W. Maher, http://solr.bccampus.ca:8001/bcc/file/fa667d22-26c7-487e-8d75-0e57ef8eece7/1/Accounting%20Principles%20A%20Business%20Perspective.pdf
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