- amortization
- 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
- bond
- 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
- debenture
- 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
- default
- 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
- principal
- 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