Stockholders' Equity: Classes of Capital Stock

Read this chapter, which introduces long-term bonds, their value, how they compare with stock. Some companies expand using stock, while some use debt (bonds). The example exercises refer to Appendix A, which is included here.

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: Textbook Equity,
Creative Commons License This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License.