BUAD 121 - Ch. 15

From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that

• bond interest is deductible for tax purposes.

• interest must be paid on a periodic basis regardless of earnings.

• income to shareholders may increase as a result of trading on the equity.

• the bondholders do not have voting rights.

Which of the following is the exception to the category non-current liability?

• accounts payable

• mortgage payable

• bond payable

• note payable (due in five years)

Which of the following is a disadvantage of issuing bonds instead of common shares?

• Shareholder control is not affected.

• The principal of the debt must be repaid at maturity.

• Income to common shareholders may increase.

• Earnings per share may increase.

The contractual rate of interest is always stated as a(n)

• monthly rate.

• daily rate.

• semi-annual rate.

• annual rate.

If the market rate of interest is greater than the contractual rate of interest, bonds will sell

• at a premium.

• at face value.

• at a discount.

• only after the stated rate of interest is increased.