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allocation of the costs of intangible assets over their useful economic lives; also, process of separating the principal and interest in loan payments over the life of a loan
type of financial instrument that a company issues directly to investors, bypassing banks or other lending institutions, with a promise to pay the investor a specified rate of interest over a specified period of time
bond indenture
contract that lists the features of the bond, such as the principal, the maturity date, and the interest rate
bond retirement
when the company that issued the bonds pays their obligation
book value
difference between the asset’s value (cost) and accumulated depreciation; also, value at which assets or liabilities are recorded in a company’s financial statements
callable bond
(also, redeemable bond) bond that can be repurchased or “called” by the issuer of the bond before its due date
carrying value
(also, book value) value that assets or liabilities are recorded at in the company’s financial statements
compound interest
in a loan, when interest earned also earns interest
convertible bond
bond that can be converted into common stock at the option of the bond holder
coupon rate
(also, stated interest rate or face rate) interest rate printed on the certificate, used to determine the amount of interest paid to the holder of the bond
bond backed by the general credit worthiness of a company rather than specific assets
debt financing
borrowing money that will be repaid on a specific date in the future in order to finance business operations
failure to pay a debt as promised
discount on bonds payable
contra liability account associated with a bond that has a stated rate that is lower than the market rate and is sold at a discount
effective-interest method
method of calculating interest expense based on multiplying the carrying value of the bond by the market interest rate
equity financing
selling part of the business to obtain money to finance business operations
fully amortized notes
periodic loan payments that pay back the principal and interest over time with payments of equal amounts
interest-only loan
type of loan that only requires regular interest payments with all the principal due at maturity
long-term liability
debt settled outside one year or one operating cycle, whichever is longer
market interest rate
(also, effective interest rate) rate determined by supply and demand and by the credit worthiness of the borrower
maturity date
date a bond or note becomes due and payable
maturity value
amount to be paid at the maturity date
note payable
legal document between a borrower and a lender specifying terms of a financial arrangement; in most situations, the debt is long-term
par value
value assigned to stock in the company’s charter, typically set at a very small arbitrary amount; serves as legal capital
premium on bonds payable
contra account associated with a bond that has a stated rate that is higher than the market rate and is sold at a premium
face value or maturity value of a bond (the amount to be paid at maturity); also, initial borrowed amount of a loan, not including interest
promissory note
represents a personal loan agreement that is a formal contract between a lender and borrower
putable bond
bond that give the bondholder the right to decide whether to sell it back early or keep it until it matures
secondary market
organized market where previously issued stocks and bonds can be traded after they are issued
secured bond
bond backed by specific assets as collateral for the bond
serial bond
bond that will mature over a period of time and will be repaid in a series of payments
stated interest rate
(also, contract interest rate) interest rate printed on the face of the bond that the issuer agrees to pay the bondholder throughout the term of the bond; also known as the coupon rate and face rate
straight-line method
method of calculating interest expense that allocates the same amount of premium or discount amortization for each of the bond’s payment periods
term bond
bond that will be repaid all at once, rather than in a series of payments
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