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?

Issuing bonds increases ownership dilution for existing shareholders.

Bond interest must be paid even if the company has no earnings.

Bond interest payments are not tax-deductible.

Bond financing does not affect the company's leverage.

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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 options provided in the question: Each option describes a potential disadvantage of bond financing. Evaluate each statement based on financial accounting principles.

Option 1: 'Issuing bonds increases ownership dilution for existing shareholders.' This is incorrect because bonds are debt instruments, not equity. Issuing bonds does not dilute ownership since shareholders' equity remains unaffected.

Option 2: 'Bond interest must be paid even if the company has no earnings.' This is correct because bond interest payments are contractual obligations. Companies must pay interest regardless of their profitability, which can strain financial resources during periods of low earnings.

Option 3: 'Bond interest payments are not tax-deductible.' This is incorrect because bond interest payments are typically tax-deductible, reducing the company's taxable income. Option 4: 'Bond financing does not affect the company's leverage.' This is incorrect because issuing bonds increases the company's leverage by adding debt to its capital structure.