ACG 2021 Exam 3 Study Set with Questions and Correct Answers
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Course
ACG 2021
Institution
ACG 2021
Notes Payable Liabilities that result from issuing a note promising future payment on a specific maturity date. If the maturity date is beyond one year or operating cycle, whichever is longer then the note payable is a long-term liability. Notes usually require the payment of interest.
Bonds Payab...
ACG 2021 Exam 3 Study Set with
Questions and Correct Answers
Notes Payable ✅Liabilities that result from issuing a note promising future payment on
a specific maturity date. If the maturity date is beyond one year or operating cycle,
whichever is longer then the note payable is a long-term liability. Notes usually require
the payment of interest.
Bonds Payable ✅Liabilities or obligations that typically are incurred and remain
outstanding for five, 10, or more years that are evidence by a bond certificate issued by
the debtor. A bond is a specific type of note.
mortgage payable ✅Liabilities or obligations that typically are issued to purchase the
property (e.g., real estate such as warehouses, stores, etc.) and typically remain
outstanding for 15 or 30 years. A mortgage is a specific type of note.
Bonds ✅a contract between the bond issuer and the bondholder
a liability ✅to the bond issuer what is an outstanding bond?
an asset ✅to the bond holder what is an outstanding bond
borrowing money ✅what is a corporation doing when it issues bonds?
-identity of debtor
-the principal
-the contractual interest rate
-how frequently interest is promised to be paid to bondholders
-the bond's maturity date ✅what does a bond certificate include?
principal value ✅The amount the issuing entity promises to pay at maturity other than
interest.
maturity date ✅the date when the bond issuer promises to pay the principal value
contract rate (contractual interest rate) ✅The annual interest rate used to determine
cash interest paid from the bond issuer to the bondholder(s). Since the contractual
interest rate is stated on the bond certificate it is sometimes called the stated interest
rate, nominal rate, or coupon rate
market interest rate ✅The capital market's prevailing rate of interest on loans
associated with bonds in the given type of bond's risk class and loan duration given
, market-wide supply and demand for bonds. It is the annual interest rate that determines
the true rate of interest incurred by the debtor, including interest paid and the
amortization of bond discounts and/or premiums.
time value of money ✅Money available today is worth more than an identical sum
available in the future. This difference occurs due to the earning capacity of money (i.e.,
interest)
compounding ✅Interest is paid to bondholders periodically, such as annually, semi-
annually (i.e., twice per year). Compounding refers to how often interest is computed.
future value ✅the value of an asset at a specific future date given a specified rate of
return
present value ✅the current value of some future amount or sum of money
secured ✅The bond issuer (i.e., the debtor) has specific assets that it pledges as
collateral in case the bond issuer defaults on paying interest and/or repaying the
principal
unsecured ✅The bond issuer does not pledge specific assets as collateral for the bond
in case it defaults on paying interest and/or repaying the principal. These are sometimes
called debenture bonds or debentures
convertible ✅The bond issuer allows bondholders the option to exchange the bond for
shares of stock of the issuing company
callable ✅The bond issuer is allowed to call (i.e., redeem or buy back from
bondholders) the outstanding bonds prior to the maturity date.
term bonds ✅All of the bonds in a particular issuance mature on the same date(i.e.,
most bonds mature in 10 years, but some bonds have other maturities (e.g.,5 years to
100 years))
serial bonds ✅bonds in a particular issue mature at different dates in an installment or
staggered manner
registered bonds ✅bonds issued in the name and addresses of their holders
Bearer Bonds (Unregistered Bonds) ✅bonds that are payable to whoever holds them-
many are also coupon bonds with coupons attached to the bond that the bearers
exchanges or redeems in exchange for interest payments
-the dollar amounts to be paid by the bond issuer
-the length of time until the amounts will be received (often semi-annually or annually)
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