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Principles of Financial Accounting
Chapter 13
31
Accounting
Undergraduate 2
04/28/2011

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Term
Bond
Definition
A security, usualy long term, representing money that a corporation or other entity borrows from the investing public.
Term
Bond certificate
Definition
Evidence of an organization's debt to a bondholder.
Term
Bond indenture
Definition
A contract that defines the terms of a bond issue.
Term
Bond issue
Definition
The total value of bonds issued at one time.
Term
Callable bonds
Definition
Bonds that the issuing corporation can buy back and retire at a call price before their maturity dates.
Term
Call price
Definition
A specified price, usually above face value, at which a corporation can buy back its bonds before maturity.
Term
Capital lease
Definition
A long-term lease that resembles a purchase or sale on installment and in which the leasee assumes the risk of ownership.
Term
Convertible bonds
Definition
Bonds that can be exchanged for the issuing corporation's common stock.
Term
Coupon bonds
Definition
Bonds not registered with the issuing organization that bear coupons stating the amount of interest due and the payment date.
Term
Deferred income taxes
Definition
The result of using different methods to calculate income taxes for financial reporting and tax purposes.
Term
Discount
Definition
The amount by which a bond's face value exceeds its issue price, which occurs when the market interest rate is higher than the face interest rate.
Term
Early extinguishment of debt
Definition
The retirement of a bond issue before its maturity date.
Term
Effective interest method
Definition
A method of amortizing bond discoutns or premiums that applies a constant interest rate (the market rate when the bonds were issued) to the bonds' carrying value at the beginning of each interest period.
Term
Face interest rate
Definition
The fixed rate of interest paid to bondholders based on the face value of the bonds.
Term
Financial leverage
Definition
A corporation's ability to increase earnings for stockhoders by earning more on assets that it pays in interest on the debt it incurred to finance the assets.  Also called trading on equity.
Term
Market interest rate
Definition
The rate of interest paid in the market on bonds of similar risk.  Also called effective interest rate.
Term
Mortgage
Definition
A debt secured by real property.
Term
Off-balance-sheet financing
Definition
Structuring long-term debts in such a way that they do not appear as liabilities on the balance sheet.
Term
Operating lease
Definition
A short-term lease in which the risks of ownership remain with the lessor and for which payments are recorded as rent expense.
Term
Other postretirement benefits
Definition
Health care and other nonpension benefits paid after retirement but earned while the employee is still working.
Term
Pension fund
Definition
A fund established by the contributions of an employer and often of employees from which payments are made to employees after retirement or upon disability or death.
Term
Pension plan
Definition
A contract requiring a company to pay benefits to its emplooyees after they retire.
Term
Premium
Definition
The amount by which a bond's issue price exceeds its face value, which occurs when the market interest rate is lower than the face interest rate.
Term
Registered bonds
Definition
Bonds that the issuing compnay registers in the names of the bondholders.
Term
Secured bonds
Definition
Bonds that carry a pledge of a certain assets as a guarantee of repayment.
Term
Serial bonds
Definition
Bonds in one issue that mature on different dates.
Term
Straight-line method
Definition
A method of amortizing bond discounts or premiums that allocates the discount or premium equally over each interest period of the life of a bond.
Term
Term bonds
Definition
Bonds in one issue that mature at the same time.
Term
Unsecured bonds
Definition
Bonds issued on an organization's general credit.  Also called debenture bonds.
Term
Zero coupon bonds
Definition
Bonds that do not pay periodic interest but that pay a fixed amount on the maturity date.
Term
Interest coverage ratio
Definition
A measure of the degree of protection a company has from default on interest payments; (Income Before Income Taxes + Interest Expense) ÷ Interest Expense.
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