ACCT 209 Lecture Notes - Lecture 8: Bobcat Company, Promissory Note, Market Rate
Document Summary
Advantages of debt financing: does not dilute ownership o. Interest on debt is tax deductible , interest reduces taxable income: may result in positive financial leverages. Disadvantages of debt financing: may result in negative financial leverages, debt must be repaid, both interest and principal are not discretionary o. Borrowing is risky, decreases company"s ability to bear losses. Generally paid off gradually over time rather than with single payment. Constant payment to principal plus interest on unpaid balance or. Constant total payment, with portion of total as payment to principal and remaining amount as interest. Bear corporation singed a ,000, three-year, 5% note payable on january 1, 20x3. Bear to make annual payments of ,000 principal, plus interest, with the 1 st payment due on. 12/31/x3, loan balance = 40,000 -> current = 20,000, long-term = 20,000. On january 2, 20x3, parker company purchased a new warehouse.
