ACCT 001 Lecture Notes - Lecture 8: Finance Lease, Financial Statement
23 Sep 2020
School
Department
Course
Professor
M. May
Financial Accounting
Accounting 1
College of the Sequoias
L. Notes
Face Value- The amount of principle due at maturity date.
Contractual Interest Rate- Is the rate used to determine the amount of cash interest the
borrower pays and investor receives.
Present Value- The value today of an amount to be received at some date in the future after
taking into account current interest rates.
Market Interest Rate- The rate that investors demand for loaning funds. (Not the same a
contractual or stated rate)
Discount of Premiums on Bonds- Often the contractual (stated) interest rate and the market
(effective) interest rate differ… therefore bonds sell above or below face value.
Bond Discount-
When the investor pays less than the face value of the bond.
WHY?
To adjust the contractual interest to the market interest rate.
Bond Premium-
When the investor pays more than the face value of the bond.
WHY?
To adjust the contractual interest to the market interest rate.
Bond Retirement- Bonds may be redeemed at maturity of before maturity.
Redeeming Bonds Before Maturity-
A company may decide to retire bonds before maturity to:
● reduce interest cost
● remove debt from its balance sheet.
A company should retire debt early only if it has sufficient cash resources.
● When bonds are retired before maturity, it is necessary to:
● Eliminate the carrying value of the bonds at the redemption date
● Record the cash paid
● Recognize the gain or loss on redemption.
Debt to Assets Ratio- Indicates the extent to which a company’s debt could be repaid by
liquidating assets.
Times Interest Earned Ratio- Provides an indication of company’s ability to meet interest
payments as they come due.
Contingent Liabilities-
Document Summary
Face value- the amount of principle due at maturity date. Contractual interest rate- is the rate used to determine the amount of cash interest the borrower pays and investor receives. Present value- the value today of an amount to be received at some date in the future after taking into account current interest rates. Market interest rate- the rate that investors demand for loaning funds. (not the same a contractual or stated rate) Discount of premiums on bonds- often the contractual (stated) interest rate and the market (effective) interest rate differ therefore bonds sell above or below face value. When the investor pays less than the face value of the bond. When the investor pays more than the face value of the bond. To adjust the contractual interest to the market interest rate. Bond retirement- bonds may be redeemed at maturity of before maturity. A company may decide to retire bonds before maturity to:
