The two main forms of corporation financing are debt and equity. In deciding whe
ID: 2337590 • Letter: T
Question
The two main forms of corporation financing are debt and equity. In deciding whether to use one or both and how much of each to use, management must consider various aspects of each.
a) How are bonds and notes different from stock as a form of financing? Discuss the effects on ownership and control as well as the costs of having bonds and notes outstanding as compared with stock.
b) On April 1, 2017, Glimmer Twins Corp. issued $1,000,000 of 6% bonds with a 10-year maturity at par. The bonds pay interest annually on April 1 of each year. The company’s fiscal year ends Dec. 31. What amount or amounts would the company report on the Dec. 31 income statement and balance sheet for these bonds?
Explanation / Answer
2) Company would record " Interest expense " in income statement on the Dec. 31
Interest expense = [$1000000*6% *9/12 months]
=$45000
Company would record "Bonds payable and interest expense payable" in Balance sheet on the Dec. 3
Current liabilities
Interest expense payable = $45000
Long tem debt
6% Bonds payable = $1000000
Total liabilities = $1045000
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