ACCT 5110 Final Exam 4 Questions And
All Correct Answers.
Why do companies issue long term debt - Answer - Debt financing may be the only available source of
funds: small companies have issues issuing equity because of risk
- Debt financing has a lower cost of capital than equity: expect lower return with debt
- Debt financing offers income tax advantage: deductible as interest expense
- Debt does not have voting rights
What are the most common long term liabilities - Answer Bonds payable, long term notes payable,
pension obligations, deferred income taxes, other long term deferrals
Why does debt financing have a lower cost than equity financing? - Answer Because debt is less risky
than stock, investors in debt securities expect lower return
Bond - Answer A debt instrument companies issue and agree to pay holder face value at maturity date
and periodic interest
face value (par value) - Answer Amount of money that the issuer agrees to pay at maturity
contract rate (stated, face, or coupon rate) - Answer The interest rate on the face value of the bond
bond certificate - Answer Document providing evidence of ownership and specifies the face value,
interest rate, and maturity date
The selling price of bonds payable is determined by - Answer Summing the present value of the
principal plus the interest payments discounted at effective interest
At par bond issuance - Answer When the sated interest rate equals the market interest rate. The bond
is issued for face value of bonds.
All Correct Answers.
Why do companies issue long term debt - Answer - Debt financing may be the only available source of
funds: small companies have issues issuing equity because of risk
- Debt financing has a lower cost of capital than equity: expect lower return with debt
- Debt financing offers income tax advantage: deductible as interest expense
- Debt does not have voting rights
What are the most common long term liabilities - Answer Bonds payable, long term notes payable,
pension obligations, deferred income taxes, other long term deferrals
Why does debt financing have a lower cost than equity financing? - Answer Because debt is less risky
than stock, investors in debt securities expect lower return
Bond - Answer A debt instrument companies issue and agree to pay holder face value at maturity date
and periodic interest
face value (par value) - Answer Amount of money that the issuer agrees to pay at maturity
contract rate (stated, face, or coupon rate) - Answer The interest rate on the face value of the bond
bond certificate - Answer Document providing evidence of ownership and specifies the face value,
interest rate, and maturity date
The selling price of bonds payable is determined by - Answer Summing the present value of the
principal plus the interest payments discounted at effective interest
At par bond issuance - Answer When the sated interest rate equals the market interest rate. The bond
is issued for face value of bonds.
