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UA ACCT 200 - Bonds - Part II

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ACCT 200 1st Edition Lecture 19 Outline of Last Lecture I. Types of BondsII. Bonds Offered at a DiscountIII. E 9-4IV. BE 9-9Outline of Current Lecture I. BE 9-9II. BE 9-10III. Installment NotesIV. BE 9-17V. E 9-16VI. Selling Stocks Vs. BondsVII. BE 9-18Current LectureBE 9-9Cash 55,786 bond payable 55,786Interest expense 3905 (55,786*7%) bond payable 305 cash 3600 (60,000*6%)(bond sold at discount)BE 9-10(bond sold at premium)Cash 64,633 bonds payable 64,633Interest expense 3232Bond payable 368 cash 3600 (60,000*6%)Installment notes:Make regular installment payments like car loanEach month pay 1/12 of annual interest rateBE 9-17Cash 20,000 note payable 20,000Interest expense 116.67Note payable 362.25 cash 478.92 E 9-161st month:Interest expense 200 (40,000*6%*(1/12))Note payable 573.31 cash 773.31(new principle balanace=40,000-573.31=39,426.69)2nd month:Interest expense 197.13 (39,426.69*6%*(1/12))Note payable 576.18 cash 773.31Sell stock to investors – don’t owe them anythingSelling bonds creates debtWhy wouldn’t a company always sell stock? More stock you sell, more owners, mess up earnings per share ratio which makes your company not look as goodBE 9-181. Debt to equity=618/129=4.79 (for every $1 in equity, they have $4.79 in debt – seems high)2. Times interest earned=(net income+tax expense+interest expense)/interest expense=(56+34+17)/17=107/17=6.3 times (pretty


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