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 a disadvantage of bond financing?

Bond interest payments are not tax-deductible.

Issuing bonds increases the ownership dilution for existing shareholders.

Interest payments on bonds are a legal obligation and must be paid even if the company has no profits.

Bondholders have voting rights in the company.

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Verified step by step guidance

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

Analyze the disadvantages of bond financing: Unlike equity financing, bond financing creates a legal obligation for the company to pay interest regardless of its financial performance. This can be a burden during periods of low profitability.

Clarify the tax implications: Interest payments on bonds are typically tax-deductible, which is an advantage rather than a disadvantage. This eliminates the first option as a correct answer.

Evaluate ownership dilution: Bond financing does not dilute ownership because bondholders are creditors, not shareholders. This eliminates the second option as a correct answer.

Consider bondholder rights: Bondholders do not have voting rights in the company, as they are not equity holders. This eliminates the fourth option, leaving the correct answer: Interest payments on bonds are a legal obligation and must be paid even if the company has no profits.