Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

9. Current Liabilities

Types of Liabilities

Financial Accounting

9. Current Liabilities

Types of Liabilities

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Multiple Choice

Which of the following is a disadvantage of bond financing?

Interest payments on bonds are a legal obligation and must be paid even if the company has insufficient earnings.

Bond financing does not affect the company's credit rating.

Bond interest payments are not tax-deductible.

Issuing bonds increases ownership dilution for existing shareholders.

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Verified step by step guidance

Understand the concept of bond financing: Bond financing involves a company borrowing money from investors by issuing bonds. The company agrees to pay periodic interest and repay the principal amount at maturity.

Analyze the disadvantages of bond financing: Bonds require regular interest payments, which are a legal obligation. This means the company must pay interest even if it is experiencing financial difficulties or insufficient earnings.

Clarify the tax implications: Bond interest payments are typically tax-deductible, which reduces the company's taxable income. Therefore, the statement 'Bond interest payments are not tax-deductible' is incorrect.

Evaluate the impact on ownership: Issuing bonds does not dilute ownership for existing shareholders because bonds are a form of debt, not equity. Therefore, the statement 'Issuing bonds increases ownership dilution for existing shareholders' is incorrect.

Determine the correct disadvantage: The correct disadvantage is that interest payments on bonds are a legal obligation and must be paid even if the company has insufficient earnings. This can create financial strain during periods of low profitability.