Chapter 10 vocabulary (financial accouting)

Bond certificate

A legal document that indicates the name of the issuer, the face value of the bonds, and such other data as the contractual interest rate and the maturity date of the bonds.

Bonds

A form of interest-bearing notes payable issued by corporations, universities, and governmental entities.

Callable bonds

Bonds that are the issuing company can retire at a stated dollar amount prior to maturity.

Capital lease

A contractual agreement allowing one party (the lessee) to use the assets of another party (the lessor); accounted for like a debt-financed purchase by the lessee.

Contingencies

Events with uncertain outcomes that may represent potential liabilities.

contractual (stated) interest rate

Rate used to determine the amount of interest the borrower pays and the investor receives.

Convertible bonds

Bonds that can be converted into common stock at the bondholder's option.

Current liability

A debt that a company reasonably expects to pay (1) from existing current assets or through the creation of other current liabilities, and (2) within one year or the operating cycle, whichever is longer.

Discount (on a bond)

The difference between the face value of a bond and its selling price, when a bond is sold for less than its face value.

Effective-interest method of amortization

A method of amortizing bond discount or bond premium that results in periodic interest expense equal to a constant percentage of the carrying value of the bonds.

Effective-interest rate

Rate established when bonds are issued that remains constant in each interest period.

Face value

Amount of principal due at the maturity date of the bond.

Long-term liabilities

Obligations that a company expects to pay more than one year in the future.

Market interest rate

The rate investors demand for loaning funds to the corporation.

Maturity date

The date on which the final payment on a bond is due from the bond issuer to the investor.

Mortgage note payable

A long-term note secured by a mortgage that pledges title to specific assets as security for the loan.

Notes payable

An obligation in the form of a written note.

Off-balance-sheet financing

The intentional effort by a company to structure its financing arrangements so as to avoid showing liabilities on its balance sheet.

Operating lease

A contractual agreement allowing one party (the lessee) to use the asset of another party (the lessor); accounted for as a rental.

Premium (on a bond)

The difference between the selling price and the face value of a bond when a bond is sold for more than its face value.

Present value

The value today of an amount to be received at some date in the future after taking into account current interest rates.

Secured bonds

Bonds that have specific assets of the issuer pledged as collateral.

Straight-line method of amortization

A method of amortizing bond discount or bond premium that allocates the same amount to interest expense in each interest period.

Time value of money

The relationship between time and money. A dollar received today is worth more than a dollar promised at some time in the future.

Times interest earned ratio

A measure of a company's solvency, calculated by dividing income before interest expense and taxes by interest expense.

Unsecured bonds

Bonds issued against the general credit of the borrower.