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

11. Long Term Liabilities

Introduction to Bonds and Bond Characteristics

Financial Accounting

11. Long Term Liabilities

Introduction to Bonds and Bond Characteristics

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Multiple Choice

Which of the following is an advantage of bond financing for a company?

Bond financing increases the company's financial risk due to fixed interest obligations.

Issuing bonds dilutes existing shareholders' ownership.

Interest payments on bonds are tax-deductible, reducing the company's taxable income.

Bonds must be repaid at maturity, which can strain company resources.

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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 advantages and disadvantages of bond financing: Advantages include tax-deductible interest payments, which reduce taxable income. Disadvantages include increased financial risk due to fixed interest obligations and the requirement to repay the principal at maturity.

Focus on the tax-deductibility of interest payments: Interest payments on bonds are considered an expense and can be deducted from taxable income, which lowers the company's tax liability. This is a key advantage of bond financing.

Compare bond financing to equity financing: Unlike issuing stock, bond financing does not dilute ownership of existing shareholders. This makes it an attractive option for companies that want to retain control while raising funds.

Conclude why tax-deductible interest payments are advantageous: By reducing taxable income, the company can save on taxes, making bond financing a cost-effective method of raising capital despite its associated risks.