Bonds are a form of interest-bearing notes payable issued by corporations, universities, and governmental entities. Bonds offer three advantages over common stock, as shown in Illustration below:
Advantages of Bonds
1. Stockholder control in not affected.
Bondholders don’t have voting rights, so current owners (stockholders) retain full control of the company.
2. Tax savings result.
Bond interest is deductible for tax purposes dividends on stock are not.
3. Earnings per share may be higher.
Although bond interest expense reduces net income, earnings per share o common stock often is higher under bond financing because no additional shares of common stock are issued.
More from this Section
- Retained earnings restrictions
Retained earnings restrictions are circumstances that make a portion of retained earnings ...
- The Sarbanes-Oxley Act (SOX)
Sarbanes-Oxley Act is the regulations passed by Congrees in 2002 to try to reduce unethical ...
- Straight-line method of amortization
Straight-line method of amortization is a method of amortizing bond discount or bond premium ...
Taxation is an area of public accounting involving tax advice, tax planning, preparing ...
- Consigned goods
Consigned goods referred as goods that held for sale by one party (the consignee) although ...