Bonds
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. |
Category: Accounting & Auditing
Previous: ← Retained earnings restrictions
Next: Bond certificate →
More from this Section
- Direct materials price standard
The direct materials price standard is the cost per unit of direct materials that should ... - Preparing the Statement of Cash Flows
Companies prepare the statement of cash flows differently from the three other basic financial ... - Recoverable Depreciation
When a lawsuit is issued on a contract with replacement value coverage, Recoverable Depreciation ... - Internal rate of return (IRR)
Internal rate of return (IRR) is the interest rate that will cause the present value of ... - Margin of safety
The margin of safety is a relationship used in CVP analysis which is the difference between ...