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ACC 318 Chapter 14 Fall 2006


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Long term debt?
probable future sacrifices of economic benefits arising from present obligations that are not payable in one year or the operating cycle.
Examples of Long Term Liabilities......
Bonds Payable, long term notes payable, mortgages payable, pension liabilities, and lease liabilities.
Long Term debt covenant or restriction
protect both lenders and borrowers. Stated in the bond indenture or note agreement.
Main purpose of bonds....
is to borrow for the long term when the amount of capital needed is too large for one lender to supply.
Bond indenture
bond contract that represents a promise to pay.
What is on a bond indenture?
1. A sum of money at a designated maturity rate.
2. periodic interest at a specified rate on the maturity amount.
A bond underwriter uses what two methods.....
1. underwrite the entire issue by guaranteing a certain sum to the company and assuming all the risk
2. Or sell them with a commisiion
secured bonds are.....
backed by a pledge of some sort of collateral. Ex. Mortgage bond backed by a claim on real estate.
Unsecured bonds are .....
not backed by collateral
A debenture bond is.....
unsecured. A "junk" bond is also unsecured and very risky.
Term bonds are....
bonds that mature on a single date.
Serial bonds are....
bonds that mature in installments.
Callable Bonds give.....
the issuer the right to call and retire the bonds prior to maturity.
What are convertible bonds?
they are bonds that are convertible into other securities of the corporation for a specified time after issuance.
What are commodity backed bonds (asset-linked bonds)
they are bonds that are redeemable in measures of a commodity. ex. barrels of oil, tons of coal.

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