BU127 Lecture Notes - Lecture 10: Book Value, No Liability, Debenture

• School: WLU
• Department: Business
• Course: BU127
• Professor: James Moore

Document Summary

Characteristics of bonds payable: advantages of bonds, shareholders maintain control because bonds are debt not equity, cash payments to the debt holders are limited to the scheduled payments of interest and principal. Financial leverage: financial leverage, use of (cid:271)o(cid:396)(cid:396)o(cid:449)ed fu(cid:374)ds to i(cid:374)(cid:272)(cid:396)ease the (cid:396)ate of (cid:396)etu(cid:396)(cid:374) o(cid:374) o(cid:449)(cid:374)e(cid:396)"s e(cid:395)uity; it o(cid:272)(cid:272)u(cid:396)s (cid:449)he(cid:374) the interest rate on debts is lower than the rate of return on total assets. Long-term debt types: bank loans, notes, mortgages, bonds and debentures. Long-term notes payable: notes payable are typically transactions with a single lender. Bond accounting entries: bond prices are made up of the present values of interest and principal. Zero coupon bonds: zero coupon bonds do not pay periodic interest, the issue price of these bonds is the present value of the principal amount, they are called deep discount bonds. Times interest earned ratio: the ratio shows the amount of resources generated for each dollar of interest expense.